How Arizona taxes commercial lease income

Lenders put expenses and reimbursements into net operating income. In Arizona, some of those reimbursements can also be part of the landlord's transaction privilege tax base. The Arizona Department of Revenue's commercial-lease page, opened October 30, 2026, defines a commercial lease as real property leased or rented for commercial purposes, including office buildings, stores, factories, farm land, parking and storage, and banquet halls or meeting rooms. It says the definition does not include agricultural property or land or structures used for residential purposes, and that these commercial leases are subject to county and city transaction privilege taxes. This note is general information. It is not tax advice, legal advice, or an appraisal. A CPA, an attorney, or the other professional named in the note decides how the rule applies to a given property. Property-tax classification, which is a different bill, is Arizona commercial property tax.

The same page lists income it treats as taxable: rent, property tax, insurance reimbursement, common-area maintenance, clerical services if the lease includes them, utility connect and disconnect charges, certain machine commissions, and payments for leasehold improvements. It points readers to the Arizona Administrative Code and to a tax ruling for more detail. It tells filers to look up the address in the state's rate tool and to choose rent or lease of space. This note does not copy a percentage from that tool. A rate printed here would be stale the day a city changes it.

County code, city code, and the residential change that does not apply

AZDOR classifies the county tax as Commercial Lease, business code 013, and names five counties that impose it: Coconino, Gila, Maricopa, Pima, and Pinal. At the city level it names Commercial Rental, Leasing and Licensing, business code 213, and a possible additional city tax, business code 313. It says some cities have that additional tax and some cities do not tax commercial lease at all. A lease in one of the five counties can owe county tax even when the city does not. A lease outside those counties is not automatically free of city tax. Look up the address.

The department's residential-rental guidelines, opened the same day, say that starting January 1, 2025, owners should no longer collect city transaction privilege tax on residential rentals of 30 or more consecutive days, citing Laws 2023, Chapter 204 and A.R.S. 42-6004(H). The page says there is no state or county tax on residential rentals, and it says hotels and other stays under 30 days still collect tax under the lodging classification. That repeal is not a repeal of commercial-lease tax. A shop, an office, and a warehouse stay on the commercial-lease page. A CPA decides which classification a mixed building uses. How the rent roll itself is read is rent roll and trailing twelve.

What an underwriter should ask, and what this office will not compute

Ask whether the lease says the tenant reimburses the tax, whether that reimbursement is in the gross income AZDOR listed, and whether the trailing expenses already netted it out. Double-counting a pass-through, or omitting a tax the landlord still pays, changes the income the lender is using. This page does not make that adjustment for you. A refinance that has to restate expenses uses Arizona refinance.

Capital Market Funds arranges financing. It is not the Department of Revenue and not a CPA. Capital Market Funds is not a Fannie Mae DUS lender. The office is 7373 E Doubletree Ranch Rd #255, Scottsdale, AZ 85258. The phone is (480) 495-8072. Capital Market Funds, LLC - CBK-2007014 - Commercial Mortgage Banker and NMLS 1445066.