B&B's could get tax break

State lawmakers are moving to expand the number of businesses that can qualify as a "bed and breakfast" for property tax purposes. Now anything with more than four rooms is taxed like a hotel; HB 2191 would allow facilities with up to six rooms to qualify as a B&B.

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 those that do the numbers are 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 it actually has six guest rooms. That technically makes it a commercial property, subject to a 23 percent assessment ratio.

And commercial properties also are ineligible for a state rebate of part of school taxes.

The bottom line, said DiGregorio, is the taxes shot up immediately from about $3,000 a year to $15,000. And 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 in some ways like a casual business: 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 said he did not know how many other bed and breakfast inns would benefit from the change.

The Arizona Association of Bed and Breakfast Inns has 56 members, and the association estimates there are about 200 B&Bs throughout the state.

The measure already has cleared its first hurdle, gaining unanimous support from the House Ways and Means Committee. It now awaits action by the full House.