Arizona tax-code commission reapproves several model-code amendments, repeals narrow rental-occupancy classification

The Model City Tax Code Commission on an expedited agenda reapproved a batch of amendments to the model city tax code and repealed a narrow rental‑occupancy classification, saying the changes align municipal tax language with state law and ease compliance for taxpayers.

The commission reapproved a 2019 amendment to exempt life‑care contracts sold by assisted‑living facilities, retroactive to Jan. 1, 2012, so the exemption is available for audit and tax reporting purposes. Lee Grafstrom, representing the League of Arizona Cities and Towns and the City Tax Administrators Council, described life‑care contracts as an insurance vehicle and urged treating them like other insurance products: "This is not something that should fall under this… Once we realized what they were doing and they explained it to us, we agreed with them. It should not be taxable." The commission moved and approved the reapproval by roll call.

The commission also folded a telecommunications regulation into the main body of the model code and incorporated a state exemption for "over‑the‑top" streaming services, with a retroactive effective date of July 1, 2019. The Department of Revenue presenter explained the change brings the model code in line with state statute (cited in the discussion as ARS 42‑6004), ensuring that streaming of linear television via the internet is treated the same as cable or satellite for tax purposes.

A separate amendment adjusted the model code's treatment of application services (software) used by schools and other educational institutions. That amendment, backdated to Oct. 1, 2019, creates parity between retail and rental/classification treatment for application services sold or licensed to K–12 and higher‑education institutions; the League noted a minor textual fix before final posting (changing wording to include "leased, rented, or licensed for use to").

The commission adopted language to conform the model code with state statutory language on "independent functional utility," applying a retrospective effective date cited in the presentation as July 1, 1997. The League representative said copying the state language into the model code helps readers find consolidated city‑level rules without cross‑referencing separate statutes.

The meeting ended with a vote to repeal the rental‑occupancy local option (section 4.40), effective Jan. 1, 2025. League staff described the classification as a narrowly applicable relic intended for a small number of pre‑1967 leases; staff said outreach identified roughly 800–900 taxpayers reporting under that class, but only "three, maybe five" actually belonged there. The League said it will transition eligible taxpayers into the standard real‑property rental classification and noted some taxpayers will receive refunds if they had been reporting incorrectly.

Votes at a glance

- 2019 rental of real property amendment (life‑care contract exemption; retroactive to 01/01/2012): approved (roll‑call; tally recorded as 6 yes, 0 no, 1 absent in roll call). - 2019 telecommunications amendment (§4.70; over‑the‑top exemption; retroactive to 07/01/2019): approved (roll‑call; tally recorded as 6 yes, 0 no, 1 absent). - Application services amendment (§4.50; rental/leasing parity for educational application services; retroactive to 10/01/2019): approved (roll‑call; tally recorded as 6 yes, 0 no, 1 absent). - Independent functional utility amendment (conformity with state language; retroactive to 07/01/1997): approved (roll‑call; tally recorded as 6 yes, 0 no, 1 absent). - Rental‑occupancy local option Q repeal (section 4.40; effective 01/01/2025): approved (roll‑call; tally recorded as 6 yes, 0 no, 1 absent).

What it means

Commission members and League staff said the package is largely technical and corrective: it brings municipal language into conformity with state law, clarifies which services and contracts are taxable, and removes or replaces obsolete classifications to simplify reporting. League staff said the changes will reduce taxpayer confusion, limit the need for cross‑referencing statutes, and prevent retroactive collections in many cases; they also noted a small number of taxpayers may be eligible for refunds where prior reporting was incorrect.

The commission adjourned after thanking Department of Revenue staff and the League for preparing the language and for attending the last‑minute meeting. Chair Scott Summers closed the session with holiday remarks and adjourned the meeting.