Small Inn and Bed and Breakfast Industry Articles

Howard Fischer
Capitol Media Services
Feb. 7, 2008 12:00 AM

Some Arizonans involved in the tourist trade may be in line for tax relief.

State lawmakers are moving to expand the number of businesses that can qualify as a "bed and breakfast" for property-tax purposes. Currently, inns with more than four rooms are taxed as hotels; House Bill 2191 would allow facilities with up to six rooms to qualify as B&Bs.

Lobbyist Barry Aarons said the difference in tax revenues to local governments would be minimal. He said there are probably only a handful of establishments that would qualify.

But for the businesses that do qualify, the numbers could be significant.

The poster child for this is the Royal Elizabeth Bed and Breakfast in downtown Tucson, converted several years ago from a Victorian mansion built in the 1870s.

Jeff DiGregorio said he and his partner were paying about $3,000 a year in property taxes. That's based on residential property being assessed for tax purposes at 10 percent of its "full cash value," a figure that's supposed to approximate market value.

But staffers from the Pima County Assessor's Office subsequently discovered that the B&B has six guest rooms. That technically makes it a commercial property subject to a 23 percent assessment ratio.

And commercial properties are ineligible for the state's partial rebate of school taxes.

The bottom line, DiGregorio said, is that their taxes shot up from about $3,000 a year to $15,000. This year, they are close to $16,000.

Aarons said treating the B&B like a hotel is unfair.

He pointed out that owners actually have to live in the building. And state law essentially also requires that they be operated as a casual business in some ways: An otherwise-qualified property loses its preferred status if its rooms are occupied more than half the time.

DiGregorio said treating the B&B as a residential property for tax purposes makes sense. He noted it is open only about eight months of the year.

"This is our home when it's not a business," he said.

Aarons, whose clients include the Arizona Tourism Alliance and the Tucson Convention and Visitors Bureau, said he did not know how many other bed-and-breakfast inns would benefit from the change.

Legislative staffers said the Arizona Association of Bed and Breakfast Inns has 56 members. But that association also estimates there actually are about 200 B&Bs throughout the state.

The measure has cleared its first hurdle, gaining unanimous support from the House Ways and Means Committee.