Phoenix and Peoria, Arizona Commercial Lease Tax TPT Guide
Arizona banned cities from taxing residential rent in January 2025. That change got a lot of coverage, and it left some business owners with the wrong idea about their own lease, as commercial rent was never part of that law.
Which means that if you’re leasing office, industrial, or retail space anywhere in the Deer Valley or Peoria corridor, your landlord is still required to collect a tax on your rent and on quite a bit more than the rent alone.
This guide explains what gets taxed, what doesn’t, and what the current rates look like in the cities where Rowe & Associates brokers commercial real estate leases.
How Arizona’s Rental Tax Ban Doesn’t Apply to CRE Leases
Arizona’s transaction privilege tax, or TPT, is what most people mean when they refer to “sales tax.” The state’s definition is a little more precise: TPT is a tax on the privilege of doing business in Arizona. It’s imposed on the seller or landlord, not the buyer or tenant. In practice, though, that cost is usually passed along to the customer through product prices or the rent charged to a tenant.
As mentioned above, Arizona stopped allowing cities to charge TPT on residential rentals of 30 days or longer in January 2025. Landlords renting apartments and houses had to remove that tax from residential rent entirely. There was no phase-out period.
Commercial leases are different. They fall under a separate business classification, and that classification did not change.
A commercial lease generally includes office buildings, industrial properties, retail stores, warehouses, storage facilities, parking lots, and similar properties leased for business purposes. The Arizona Department of Revenue continues to classify these leases under business code 013 at the state and county level. They remain taxable wherever the applicable local jurisdiction imposes the tax.
Where Arizona Commercial Lease Tax Applies
Arizona does not impose a state-level tax on commercial leases. The state rate for this classification is 0%.
County and city taxes are a different story.
Five Arizona counties impose a county-level tax on commercial leases: Coconino, Gila, Maricopa, Pima, and Pinal. Maricopa County, which includes Phoenix, Peoria, Glendale, Scottsdale, and other Valley communities, charges a 0.5% fee.
Individual cities can then add their own municipal tax. These rates are reported separately under business code 213 and, in some cities, under an additional business code, 313.
Even outside those five counties, commercial leases can still be subject to municipal tax. So if you’re leasing commercial space in a rural part of Arizona, don’t assume there’s no tax simply because your county doesn’t impose one.
What Counts as Taxable Rent?
This is where commercial tenants sometimes get caught off guard. Under Arizona’s commercial lease classification, the taxable amount isn’t limited to base rent.
Both Phoenix’s and Peoria’s published guidance take the same approach: gross income includes amounts paid to the landlord or on the landlord’s behalf. That can include common area maintenance (CAM) charges, property tax reimbursements, insurance reimbursements, and other lease pass-throughs.
For example, suppose you’re paying $12 per square foot in base rent and another $4 per square foot for CAM and tax reimbursements. TPT applies to the full $16, not just the $12 base rent.
That’s particularly important for industrial and office tenants in the Deer Valley and Peoria corridor, where operating expenses are commonly passed through separately from base rent.
We’ve written before about operating expense pass-throughs and CAM charges in Phoenix leases. Tax treatment is another reason to read those sections of the lease carefully before signing.
What Arizona Commercial Lease Tax Means for Tenants
When comparing commercial properties in Arizona, don’t look at the advertised rental rate alone. Commercial lease tax can affect your total occupancy cost, so it is important to understand how the Arizona commercial lease tax will be handled before signing a lease.
First, find out whether the quoted rent is TPT-inclusive or whether the tax will be added separately. Both approaches are used, and the lease should clearly state how applicable taxes will be handled. Knowing this upfront makes it easier to compare the true cost of different properties.
Second, include the tax in your occupancy budget. If you’re moving a business to Arizona from a state that doesn’t tax commercial rent in a similar way, this additional expense can be easy to overlook. And remember, TPT may apply to certain pass-through expenses—not just base rent.
Third, confirm the applicable jurisdiction and rate. Ask your commercial real estate broker or landlord which tax jurisdiction applies to the property and what rate is currently in effect. This matters especially when you’re comparing properties in different cities or near jurisdictional boundaries.
A commercial real estate broker at Rowe & Associates can help you understand how taxes and other lease costs affect your total occupancy expenses and make more meaningful comparisons between properties.
Contact Us
Arizona Commercial Lease Tax FAQs
The combined commercial lease tax rate in Phoenix is 3.4%, based on Arizona Department of Revenue rates effective January 1, 2026. That includes a 2.80% Phoenix city rate, a 0.10% additional city tax on commercial leases, and a 0.50% Maricopa County rate.
The combined commercial lease tax rate in Peoria is 2.3%, based on the rates effective January 1, 2026. This includes a 1.80% city rate and a 0.50% Maricopa County rate.
Yes. Arizona’s commercial lease tax can apply to more than base rent. According to the Arizona Department of Revenue, taxable income can include CAM charges, property tax reimbursements, insurance reimbursements, and certain other amounts paid to or on behalf of the landlord.
No. Arizona’s state-level transaction privilege tax rate for commercial leases is 0%. Commercial leases can still be subject to county and municipal transaction privilege taxes.
Side note: Commercial lease tax rates can change, so always verify the current rate for the specific property and location. Contact Rowe & Associates to schedule a free consultation. Our CRE agents serving Phoenix and other Arizona markets can help you find current information about applicable commercial lease tax rates.
Get Your CRE Lease Reviewed for Arizona Commercial Lease Tax
Commercial lease tax is just one more line item that can get buried in a lease, right alongside annual escalations, CAM caps, and tenant improvement terms.
Sam Rowe, CNE, and his team at Rowe & Associates work with tenants and landlords throughout the Deer Valley and Peoria industrial and office corridor and have experience reviewing the details that can affect the real cost of a commercial lease.
Call (480) 933-0004 or use the online form to schedule a free consultation with a commercial real estate broker before you sign.