The Unsettled Horizon: Statewide Short-Term Rental Governance Post-Sedona Ruling

The recent legal conclusion in Sedona regarding short-term rentals (STRs) in mobile home parks serves as far more than a localized land-use skirmish; it is a potent, tangible illustration of the continuing tension between state preemption and municipal regulatory ambition in Arizona. The November 28, 2025, decision by the Arizona Court of Appeals, which favored the property owner in the dispute with the City of Sedona, did not resolve the larger statewide debate over housing supply, neighborhood character, and the operational scope of the booming vacation rental industry. Instead, it injected a fresh level of urgency into legislative discussions, underscoring that the fundamental definition of the state’s 2016 preemption law remains subject to judicial interpretation, leaving the door open for further legislative attempts to recalibrate the balance of power.

This ruling, which found that state law bars Sedona from prohibiting STRs in mobile homes by defining the dwelling unit as the home itself rather than the park lot, directly challenges the policy postures of numerous municipalities attempting to manage their housing stock against the backdrop of a massive, growing industry. As of the close of the first regular session of the 57th Legislature, lawmakers have yet to achieve consensus on amending the statutes that underpin this conflict, leaving the status quo—a framework generally permissive of STRs but allowing for limited local licensing—in effect as the state looks toward the 2026 session.

The Evolving Landscape of Statewide Short-Term Rental Governance

Arizona’s approach to short-term rental governance has long been characterized by a foundational preemption statute, initially enacted in 2016, which severely limited the ability of cities and towns to restrict the use of residential property for transient lodging. The ongoing narrative of the last several years has been a continuous tug-of-war: municipalities pushing for greater local control to mitigate housing affordability crises, and industry advocates and state-level legislators defending what they see as vital property rights and a source of supplemental income for homeowners.

Status of Other Legislative Efforts in the Current Session

The judicial battle that culminated in the November 2025 appellate decision unfolded concurrently with legislative maneuvering at the State Capitol, though with markedly different results. During the recently concluded 2025 legislative session, the Arizona Legislature considered several proposals aimed at refining the existing framework, often responding to pain points highlighted by local governments.

Reports indicate that a spectrum of bills were introduced, attracting support from legislators across the political aisle. These proposals touched upon several key areas of contention, including:

Measures seeking to shorten the timeline for license suspension or revocation proceedings initiated by a municipality against a non-compliant STR operator.
Bills attempting to address licensing discrepancies or harmonize regulatory requirements between traditional transient lodging establishments (hotels) and residential STRs.

However, despite the introduction of these measures, a critical threshold remained uncrossed: none of the proposed changes successfully navigated the committee process to receive a full legislative hearing. This legislative inertia, occurring even as municipal organizations actively lobbied, signals a continued deadlock at the state level regarding significant modification of the preemption statutes.

Municipal leaders, strategically unified through organizations such as the League of Arizona Cities and Towns, have been unequivocal in their policy objectives. In response to housing impacts that they argue are directly exacerbated by the conversion of long-term units into traveler accommodations, these organizations have actively sought legislative changes that would grant them substantial new powers.

The desired legislative toolkit for municipal governance, as articulated by these local bodies heading into the next cycle, centers on two primary areas of authority:

The power to cap the total number of STR licenses that can be issued within designated “saturated zones” or specific geographic areas experiencing acute housing pressure.
The authority to lower the threshold for revoking licenses due to repeated or persistent violations of established city ordinances, moving away from multi-step warning systems.

This proactive stance by municipal organizations sets the stage for the next legislative battle, as the Sedona ruling provides a stark, immediate case study illustrating the current limits of local enforcement under the existing statute.

The Impact of Recent Statutory Changes

The landscape of local STR regulation was already being reshaped by legislation passed in prior sessions, which continues to manifest its effects into 2025. A key development impacting local ordinances was House Bill 2720, enacted in 2024 and effective January 1, 2025. This measure specifically targeted Accessory Dwelling Units (ADUs).

For cities with populations exceeding 75,000, HB 2720 barred local governments from banning the use of ADUs for STRs, provided the ADU had received its certificate of occupancy or final approval on or after a specified date in late 2024. This legislative mandate directly forced changes in highly populated areas. For example, the City of Phoenix, which had previously enacted ordinances banning STR use in ADUs amidst local housing concerns, was compelled to amend its regulations to align with the state mandate beginning in 2025.

Sedona itself experienced this push-and-pull earlier in 2025. The City Council, in a series of unanimous votes finalized in March and April 2025, approved amendments to its own STR ordinance. These changes were overtly designed, as one councilman noted, to “make it less desirable to own a short-term rental.” Key amendments included shifting the permitting structure to require a permit for “each short-term rental unit” rather than one per property, and clarifying the status of ADUs. The council sought to leverage the newest state law, carving out grandfathered “guest quarters” while restricting newer ADUs unless the owner used the property as their primary residence.

The Sedona court case, involving a dispute over a mobile home park, is distinct from the ADU debate, yet both spring from the same source: a state statute originally intended to legalize and lightly regulate STRs, now perceived by municipalities as an impediment to housing policy in an industry that has grown exponentially since 2016.

Data Illustrating the Scale of the Statewide Short-Term Rental Sector

To fully grasp the gravity of the policy challenges—both judicial and legislative—it is essential to contextualize the sheer magnitude of the sector operating under the current regulatory structure. Data collected and circulated by statewide neighborhood alliances paints a picture of a vast, financially significant, and still-growing segment of Arizona’s housing market.

While specific, definitive statewide transactional counts that perfectly align with all administrative bodies are often difficult to consolidate immediately, circulating estimates from advocacy groups illustrate the scale:

Total Properties: As of the close of the previous year (end of 2024), estimates suggested the presence of well over seventy thousand individual short-term rental properties scattered throughout the state.
Tax Compliance Footprint: In contrast, the official count of established Transaction Privilege Tax (TPT) license accounts specifically for these transient lodging rentals that year hovered around only fifty-five hundred. This disparity highlights a significant gap between the total number of active listings and those formally registered under the state’s primary lodging tax mechanism.
Professionalization: Further analysis from specialized vacation rental data firms suggested that a substantial portion of the market—roughly a quarter of all listings—was being managed under what is termed a “professionally managed” umbrella. These entities are frequently large, out-of-state companies handling dozens, sometimes hundreds, of properties, which shifts the operational dynamics away from the individual homeowner model that some preemption laws were originally intended to support.

This statistical overview reinforces why the Sedona case resonates so widely. It is not merely about one mobile home park; it involves a massive segment of the housing market whose operational structure, compliance rates, and impact on community resources are currently being defined by piecemeal judicial interpretation rather than comprehensive, forward-looking local regulatory policy.

Implications of the Appellate Ruling and the Road Ahead

The November 2025 decision opens several immediate and long-term avenues for action, all of which will shape the regulatory environment through 2026 and beyond.

The Immediate Legal Fallout in Sedona

The appellate court’s ruling in the case involving Oak Creek Mobilodge mandates that the lower court issue a ruling consistent with its opinion, effectively stating that the City of Sedona cannot prohibit the property owner from using its mobile home units for short-term rentals based on the mobile home park classification. The judges explicitly concluded that the city’s interpretation of the Short-Term Rental Statute “violates the statute’s plain language,” cementing the view that the dwelling unit—the mobile home—is the focus, granting it the same potential STR rights as a traditional single-family residence.

Mayor Holli Ploog indicated immediately following the ruling that the city council interprets the law differently and that an appeal to the Arizona Supreme Court was expected. Should Sedona pursue this avenue, the state’s highest court would have the opportunity to either uphold the appellate court’s strict reading of the 2016 statute or provide a broader interpretation that might carve out exceptions for specific housing types, such as those within managed mobile home parks.

The Legislative Mandate for 2026

The failure of the 2025 legislative session to move any STR-related bills has not dampened the resolve of municipal advocates. Instead, it has crystallized their focus for the upcoming 2026 legislative cycle. The League of Arizona Cities and Towns, leveraging its annual conference in August 2025, formally approved a set of policy goals to pursue as legislation for the next session.

The push will be squarely aimed at overturning the judicial interpretation exemplified by the Sedona ruling and regaining local control over inventory levels. The league’s primary legislative targets for 2026 will be measures that would:

Authorize municipal caps on the issuance of new STR licenses in areas deemed saturated, directly addressing the housing stock concern.
Lower the threshold for license revocation to allow quicker intervention against repeat offenders, a crucial tool for neighborhood quality-of-life enforcement.

This legislative effort will undoubtedly face a well-funded and organized opposition. Reports from late 2025 indicated that major industry players, including platforms like Airbnb, have established significant lobbying efforts in the state, retaining national firms to advocate against measures that would grant municipalities greater regulatory latitude. The investment in securing “friendly legislators” suggests that the 2026 session will be a major contest, with the preemption law itself as the central piece of legislation under review.

The Tax Landscape and Market Maturity

On the financial and operational front, the market is entering a phase of maturation characterized by increasing regulatory compliance costs and evolving tax requirements. A significant change effective January 1, 2025, removed the requirement for municipalities to collect city Transaction Privilege Tax (TPT) on residential rentals of 30 days or more. While this frees up long-term residential landlords from city taxes, it serves to sharpen the distinction between true long-term leasing and the less-than-30-day short-term lodging classification, which remains subject to TPT collection by the operator or online lodging marketplace (OLM).

The market itself, while facing increased scrutiny, continues to show resilience, particularly in high-demand metro areas. Data from the first half of 2025 showed that, even with a 15% increase in available inventory across the Phoenix region, average occupancy rates stabilized at a robust 72%, indicating that demand, particularly for quality accommodations, continues to absorb new supply.

The operational complexity for hosts is increasing: they must navigate state tax remittance, city licensing (where applicable), and the continuing threat of adverse judicial rulings or legislative overrides. This environment favors larger, professionally managed entities that can absorb the compliance overhead, which aligns with the trend suggesting a quarter of listings are now professionally managed.

Conclusion: A Crossroads for Arizona Communities

The rejection of Sedona’s local ordinance in the mobile home park dispute is a defining moment of late 2025, clearly articulating the current boundaries imposed by state statute. It acts as a powerful counterpoint to the local efforts seen in Sedona’s own 2025 ordinance amendments and the stated goals of the League of Arizona Cities and Towns.

For the near term, the regulatory structure remains defined by the 2016 preemption law, modified incrementally by ADU legislation like HB 2720. However, the clear and unified advocacy from municipal organizations, coupled with the visible friction in communities like Sedona, ensures that the debate over who controls the future of residential lodging in Arizona will not subside. As the legislature prepares for the 2026 session, the outcome of that session—whether it loosens the state’s grip or further tightens the existing framework—will determine whether the state moves toward a more localized or more centralized governance of its increasingly consequential short-term rental sector.