Transaction Privilege Taxes on Rental Property

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In the past, Property Managers, in most cases, could acquire their own Transaction Privilege Tax (TPT) license for reporting rental tax on behalf of clients. That is no longer the case. Model City Tax Code Section 310(e) states:

“Real Property Rental, Leasing, and Licensing for Use. In all cases the Transaction Privilege and Use Tax License shall be issued only to the owner of the real property regardless of the owner engaging a property manager or other broker to oversee the owner’s business activity including filing tax returns on behalf of the owner. …”

Therefore, every rental property owner is required to have a unique license and must register and identify each of their rental property locations, regardless whether they use a Property Manager (PM) or not. This requirement is on the owner and and not the PM.

The tax reform, referred to as "TPT Simplification", has been an ongoing change for a period of time now with the above requirements having having gone into effect in 2015.

With rental property, TPT only applies to city taxes. Each city sets their own rates and in few cases, the city does not collect rental tax. Some cities are referred to as "program city" meaning the State collects the TPT on behalf of the city. Non-program cities collect their own tax. Part of the TPT Simplification is to consolidate tax collection with the State for all cities. This was to happen starting January 1st, 2016, which is not yet the case. Due to the complexity of incorporating city requirements, the State is not yet handling all cities TPT. Therefore, many cities will continue to collect their own TPT until further notice.

For property owners with property in mulitple cities, there may be a requirement for multiple licenses and multiple returns until the state takes over for all cities. When a PM could use their own license, it meant one return for the state and one return for each city that the property manager had client rental homes. This was managable. Now with the recent changes in progress, there could be one return for each city, and each owner.

As part of the changes, an option remains for PM's to still complete TPT returns on behalf of owners. This would require either a tax Power of Attorney (POA) form, or changes to Property Management Agreement (PMA) with specific required language. In addition, the State also requires an additional form referred to as a Memorandum of Understanding (MOU) and applies to all cities regardless whether they are program or non-program cities at the moment. The State also requires monthly reporting of properties under management in addition to the TPT return.

This becomes very difficult for a PM to manage. Due the potential work load and chances of making errors in dealing with so many variables, Desert Peak Realty has opted not to offer this service. This will also eliminate the additional reporting requirements by the State. Desert Peak Realty will be able keep costs down and let us focus on the day to day management activities.

As the owner of rental property, you need to make sure you have, and maintain, a license with each non-program city in which you have rentals. For program cities, you maintain a license with the state. Be sure to update the state or appropriate city with a list of rental homes you own for which they currently collect taxes. The non-program cities are working with the State to transfer existing licenses over to the State. If you only have rental home(s) in non-program cities, you don't have to request a license through the State. The city will notify the State and handle the transition.

If you don't want to have to do a TPT return every month, contact either the city or State as appropriate to see about changing your return to either a quarterly or annual return. If the expected tax liability is below a certain amount, I expect you would likely qualify for less frequent returns. This should apply to owners of just one or a few rentals.

For clients of Desert Peak Realty, we would be happy to answer any questions that we can regarding TPT returns. Completing TPT returns is not a difficult process. Returns filed with the State, and for some cities, can be done online.

For tax advice, we also recommend to talk to your tax professional.