The 2018 state legislative session was very productive for the commercial real estate industry.
The biggest victory was a grand compromise on GPLET (Government Property Lease Excise Tax) reform. A unanimous deal was struck between developers, cities and tax watchdogs on the long-term retention of the 8-year property tax abatement and narrowing the application in the future to a capped land mass contained in a central business district (CBD) within a city. HB2126 passed virtually unanimously and was signed into law by Gov. Doug Ducey on April 17. The Arizona Multihousing Association, a key coalition partner with CRE, also played an instrumental role in advancing the compromise by proposing land mass percentage boundaries for a CBD, rather than dwelling on subjective “slum” and “blight” definitions in the eyes of the beholder.
Another joint victory for CRE was on the education front with the passage of SB1390, which extended the soon expiring 0.6 cent state sales tax rate for K-12 education – voters approved the original Proposition 301 in 2000 – to get more resources of every dollar expended into the classroom. That bill was signed into law on March 26.
Speaking of K-12 education and getting more resources into the classroom, we supported Gov. Doug Ducey’s 20 percent teacher pay increase contained in one of the budget bills. Significantly, this pay raise did not require that general taxes needed to be raised, as was advocated by some groups, since it will be financed through future expansion of our state economy. As we know, a general tax increase would likely hit small businesses harder than other constituencies. Playing a constructive role in getting more state resources into K-12 gives our industry credibility to be at the negotiation table as calls to raise taxes next year will only get louder. We need this seat to protect our industry and keep our economy growing.
Another CRE victory was support for reform of the property tax appeals system, which now prohibits a tax court from making a ruling where the property tax assessment for a home or business can exceed what the county assessor was originally seeking. HB2385, which applies retroactively, was signed into law with an emergency clause on March 23.
CRE had another major victory by amending the archaic prime contracting law for maintenance, repair, replacement or alteration or MRRA activities, especially as it relates to the tax treatment of alterations and improvements. Originally, SB1409 was written to exclusively benefit the cities and general/sub-contractors at the expense of CRE owners, as it would have raised taxes on owners $50 million per year. We fought this tax increase windfall and we struck a fairer compromise where the changes in TPT tax law will either be revenue neutral or a slight tax cut for owners while at the same time providing clarity and more simple compliance on alterations/improvements for general and sub-contractors. This bill was passed the last night of session by wide margins.
Finally, CRE had a huge joint victory along with the AMA also on the last night of session by successfully opposing a major tax break proposed for selected elderly home owners who would have their property tax rates slashed in half (10 percent assessment ratio reduced to 5 percent) at the expense of businesses who would bear the cost shift implications. Not only was this potentially a violation of the Arizona Constitution’s “uniformity clause” of taxation, it would have established a horrible precedent. For instance, why not provide military vets an assessment ratio break on their home, or a teacher, or a nurse, or a millennial struggling to afford their first home? SB1268 died with 11 votes in favor and 45 opposed and is now a good litmus test for future tax shift bills that come down the pike.
CRE had its only loss of the session by supporting HB2280, which dealt with curbing the practice of ABOR to allow virtually unlimited property tax breaks to private developers whose projects are situated on university land. This is a major and growing property tax shift to other similar businesses, which also unduly shorts K-12 education. While the bill died, the Arizona Tax Research Association did yeoman’s work in pointing out the policy and constitutional problems associated with this new and growing practice and momentum is only building for reform next year.
— Tim Lawless is president of Commercial Real-estate Executives for Economic Development and executive director of Buildings Owners and Managers Association of Greater Phoenix
The views expressed in guest commentaries are those of the author and are not the views of the Arizona Capitol Times.