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a. The tax rate shall be at an amount equal to two and three-tenths percent (2.3%) of the gross income from the business activity upon every person engaging or continuing in the business of leasing or renting real property located within the City for a consideration, to the tenant in actual possession, or the licensing for use of real property to the final licensee located within the City for a consideration including any improvements, rights, or interest in such property; provided further that:

1. Payments made by the lessee to, or on behalf of, the lessor for property taxes, repairs, or improvements are considered to be part of the taxable gross income.

2. Charges for such items as telecommunications, utilities, pet fees, or maintenance are considered to be part of the taxable gross income.

3. However, if the lessor engages in telecommunication activity, as evidenced by installing individual metering equipment and by billing each tenant based upon actual usage, such activity is taxable under Section 14-470.

b. If individual utility meters have been installed for each tenant and the lessor separately charges each single tenant for the exact billing from the utility company, such charges are exempt.

c. Charges by a qualifying hospital, qualifying community health center or a qualifying health care organization to patients of such facilities for use of rooms or other real property during the course of their treatment by such facilities are exempt.

d. Charges for joint pole usage by a person engaged in the business of providing or furnishing utility or telecommunication services or that is a cable operator or that is a cable operator, or charges for joint pole usage to a person engaged in the business of providing or furnishing utility or telecommunication services or that is a cable operator are exempt from the tax imposed by this Section. "Cable operator" has the same meaning as prescribed by A.R.S. Section 9-505.*

*Note—Section 6 of Ord. No. G-6808 states that this subsection (d) shall be effective January 1, 2018.

e. Exempt from the tax imposed by this Section is gross income derived from the rental, leasing, or licensing for use of real property to a qualifying hospital, qualifying community health center or a qualifying health care organization, except when the property so rented, leased, or licensed is for use in activities resulting in gross income from unrelated business income as that term is defined in 26 U.S.C. Section 512.

f. A person who has less than three (3) apartments, houses, trailer spaces, or other lodging spaces rented, leased or licensed or available for rent, lease, or license within the State and no units of commercial property for rent, lease, or license within the State, is not deemed to be in the rental business, and is therefore exempt from the tax imposed by this Section on such income. However, a person who has one (1) or more units of commercial property is subject to the tax imposed by this Section on rental, lease and license income from all such lodging spaces and commercial units of real estate even though said person may have fewer than three (3) lodging spaces.

g. (Reserved).

h. (Reserved).

i. Exempt from the tax imposed by this Section is gross income derived from payments made pursuant to a life care contract by a resident to a provider that holds a permit to enter into life care contracts issued by the Arizona Department of Insurance. For the purposes of this paragraph, "life care contract", "provider" and "resident" have the same meanings prescribed in A.R.S. Section 20-1801.**

**Note—Section 6 of Ord. No. G-6808 states that this subsection (i) shall be effective January 1, 2012.

j. Exempt from the tax imposed by this Section is gross income derived from the activities taxable under Section 14-444 of this code.

k. leasing or renting real property or the right to use real property at exhibition events in this state sponsored, operated or conducted by a nonprofit organization that is exempt from taxation under Section 501(c)(3), 501(c)(4) or 501(c)(6) of the internal revenue code if the organization is associated with major league baseball teams or a national touring professional golfing association and no part of the organization's net earnings inures to the benefit of any private shareholder or individual. This paragraph does not apply to an organization that is owned, managed or controlled, in whole or in part, by a major league baseball team, or its owners, officers, employees or agents, or by a major league baseball association or professional golfing association, or its owners, officers, employees or agents, unless the organization conducted or operated exhibition events in this state before January 1, 2018 that were exempt from taxation under A.R.S. Section 42-5073.*

*Note—Section 6 of Ord. No. G-6808 states that this subsection (k) shall be effective January 1, 2018.

l. (Reserved)

m. (Reserved)

n. Notwithstanding the provisions of Section 14-200(b), the fair market value of one (1) apartment, in an apartment complex provided rent free to an employee of the apartment complex is not subject to the tax imposed by this Section. For an apartment complex with more than fifty (50) units, an additional apartment provided rent free to an employee for every additional fifty (50) units is not subject to the tax imposed by this Section.

o. Income derived from incarcerating or detaining prisoners who are under the jurisdiction of the United States, this State or any other state or a political subdivision of this State or of any other state in a privately-operated prison, jail or detention facility is exempt from the tax imposed by this Section.

p. Charges by any hospital, any licensed nursing care institution, or any kidney dialysis facility to patients of such facilities for the use of rooms or other real property during the course of their treatment by such facilities are exempt.

q. Charges to patients receiving "personal care" or "directed care", by any licensed assisted living facility, licensed assisted living center or licensed assisted living home as defined and licensed pursuant to Chapter 4 Title 36 Arizona Revised Statutes and Title 9 of the Arizona Administrative Code are exempt.

r. Income received from the rental of any "low-income unit" as established under Section 42 of the Internal Revenue Code, including the low-income housing credit provided by IRC Section 42, to the extent that the collection of tax on rental income causes the "gross rent" defined by IRC Section 42 to exceed the income limitation for the low-income unit is exempt. This exemption also applies to income received from the rental of individual rental units subject to statutory or regulatory "low-income unit" rent restrictions similar to IRC Section 42 to the extent that the collection of tax from the tenant causes the rental receipts to exceed a rent restriction for the low-income unit. This subsection also applies to rent received by a person other than the owner or lessor of the low-income unit, including a broker. This subsection does not apply unless a taxpayer maintains the documentation to support the qualification of a unit as a low-income unit, the "gross rent" limitation for the unit and the rent received from that unit.

s. The gross proceeds of a commercial lease of real property between affiliated companies, businesses, persons or reciprocal insurers are exempt. For the purposes of this paragraph:

1. "affiliated companies, businesses, persons or reciprocal insurers" means the lessor holds a controlling interest in the lessee, the lessee holds a controlling interest in the lessor, an affiliated entity holds a controlling interest in both the lessor and the lessee or an unrelated person holds a controlling interest in both the lessor and lessee.

2. "controlling interest" means direct or indirect ownership of at least eighty percent of the voting shares of a corporation or of the interests in a company, business or person other than a corporation.

3. "reciprocal insurer" has the same meaning as prescribed in A.R.S. Section 20-762. (Ord. No. G-2976, § 5; Ord. No. G-3207, § 1; Ord. No. G-3334, § 7; Ord. No. G-3696, § 10; Ord. No. G-3748, § 1; Ord. No. G-3820, § 12; Ord. No. G-4090, § 9, 1998; Ord. No. G-4200, § 11, 1999; Ord. No. G-4214, § 6, 1999; Ord. No. G-4254, § 11, 2000; Ord. No. G-4442, § 6, 2002; Ord. No. G-4799, §§ 2, 7, 2006; Ord. No. G-4987, §§ 11, 18, 2007; Ord. No. G-5655, 2011; Ord. No. G-5849, 2013; Ord. No. G-6073, 2015; Ord. No. G-6808, § 6, 2021)

Footnote to Section 14-445. Retroactivity; refunds; nonseverability pertaining to Section 445**: A. The transaction privilege tax exemption for gross income derived from payments made pursuant to a life care contract by a resident to a provider as provided in Model City Tax Code Section 445(i) applies retroactively to taxable periods beginning from and after January 1, 2012.

B. Any claim for refund of transaction privilege tax based on the retroactive application of Model City Tax Code Section 445(i) shall be submitted to the Department of Revenue on or before December 31, 2019, pursuant to section 42-1118, Arizona Revised Statutes. A failure to file a claim on or before December 31, 2019 constitutes a waiver of the claim for refund under this section.

C. The burden is on the taxpayer to establish by competent evidence the amount of tax paid for all taxable periods and the amount, if any, attributable to gross income derived from payments made pursuant to a life care contract by a resident to a provider that qualify for exemption under the amendment to Model City Tax Code Section 445, as provided by this act. The Department of Revenue shall:

1. Review all timely filed claims.

2. Determine, on audit if necessary, the correct amount of each claim.

3. Notify the taxpayer of its determination. The notice is final unless a taxpayer appeals in the manner provided in section 42-1251, Arizona Revised Statutes.

D. Notwithstanding section 42-1119, Arizona Revised Statutes, the Department of Revenue may not make a refund until after determination of the amount of all refund claims filed pursuant to this section. If a taxpayer appeals the Department's determination, the Department, pursuant to the rules protecting confidentiality under Title 42, Chapter 2, Article 1, Arizona Revised Statutes, may notify other taxpayers who have filed claims as to the nature of any delay and, if possible, estimate the possible extent of the delay.

E. The aggregate amount of refunds under this section may not exceed ten thousand dollars ($10,000). If the aggregate amount of claims under this section that are ultimately determined to be correct exceeds ten thousand dollars, the Department of Revenue shall reduce each claim proportionately so that the total refund amount equals ten thousand dollars.

F. Interest may not be allowed or compounded on any refundable amount if paid before July 1, 2020, but if the amount cannot be determined or paid until after June 30, 2020, interest accrues from and after July 1, 2020 under section 42-1123, Arizona Revised Statutes.

G. If any part of this section is finally adjudicated to be invalid, this entire section is void. The provisions of this section are intended to be nonseverable.

**Note—Section 6 of Ord. No. G-6808 states that this subsection (i) shall be effective January 1, 2012.