ARIZONA STATE SENATE
Forty-ninth Legislature, Second Regular Session
FINAL AMENDED
FACT SHEET FOR H.B. 2504
GPLET; lease records and reporting
Purpose
Contains requirements for all new Government Property Lease Excise Tax (GPLET) leases entered into beginning June 1, 2010, and provides for the setting of new GPLET lease rates. Provides for the grandfathering of leases. Contains additional reporting requirements for GPLET leases and requires an audit and review of the GPLET rates.
Background
Article IX of the Arizona Constitution provides that all federal, state, county and municipal government property is exempt from taxation. Occasionally, as an economic development tool, government land is leased to a private party for profit for the purposes of commercial or industrial use. Since the land is still owned by the government it is exempt from property taxes.
By the 1980s the leasing of government land as an economic development tool was in wide use. In 1985 the Arizona Legislature enacted legislation that provided a method for the taxation of possessory interests. A possessory interest is created when a private party is granted the exclusive use of real property owned by a nontaxable entity. The new law specifically provided that possessory interests in federal, state, county and municipal government property would become subject to taxation. The tax on possessory interest was calculated by valuing the interest that the lessee had on the government’s property. That value was then placed on the property tax rolls as the unsecured personal property of the lessee. The standard property tax rates were then charged against that value and the lessee sent a property tax bill. Additionally, the law established possessory interest tax exemptions and provided special valuation rules for possessory interests created prior to April 1, 1985.
The possessory interest tax was challenged in court in a number of cases. The court held that limiting the special valuation to interests created before April 1, 1985, violated the uniformity clause in Article IX of the Arizona Constitution. The court also held that the possessory interest exemptions went beyond the constitutional tax exemptions and were therefore ruled invalid. As a result, all possessory interests became taxed in the same manner as other properties.
In 1995 the Legislature repealed the possessory interest tax. The intent statement expressed the Legislature’s desire that possessory interests not be subject to ad valorem taxation until a new taxing mechanism was enacted.
The GPLET, enacted by Laws 1996, Chapter 349, served as the successor to the possessory interest tax. GPLET is a local excise tax that is based on the square footage of a building rather than on its value. GPLET is levied on entities that lease the property of a city, town, county or county stadium district for commercial or industrial purposes for at least 30 days. The tax rate is dependent upon the type and use of the improvement. The tax rates are as follows:
|
Type of Property |
Tax Rate |
|
One-Story Office Buildings |
$1.00 per square foot |
|
2-7 Story Office Buildings |
$1.25 per square foot |
|
8 or more Story Office Buildings |
$1.75 per square foot |
|
Retail or Hotel/Motel Buildings |
$1.50 per square foot |
|
Warehouse or Industrial Buildings |
$0.75 per square foot |
|
Residential Rental Buildings |
$0.50 per square foot |
|
Parking Garages |
$100 per parking space |
|
Other Buildings |
$1.00 per square foot |
In addition, the tax rate is gradually reduced over the life of the lease, according to the following schedule:
|
10 to 20-year-old leases |
80 percent of the rate |
|
20 to 30-year-old leases |
60 percent of the rate |
|
30 to 40-year-old leases |
40 percent of the rate |
|
40 to 50-year-old leases |
20 percent of the rate |
|
50 or more year-old leases |
no tax |
The tax on a government property improvement is abated for a period of eight years if the following requirements are met:
The tax abatement is restricted to government property improvements within a single central business district within the “slum and blighted area.” Other improvements outside the single central business district but still within the “slum and blighted area” will pay 80 percent of the tax.
Provisions
Grandfathered Leases
1. Grandfathers all leases entered into before June 1, 2010 or that result from a development agreement, ordinance or resolution approved before June 1, 2010 that are entered into within 10 years after approval and meet all required conditions.
2. Stipulates that a grandfathered lease or development agreement which is subsequently amended continues to be subject to current law if all of the following conditions are met:
a) The government lessor determines that the amendment furthers the purpose of the original lease or development agreement.
b) Any land added under the amendment is contiguous to the land under the original lease or development agreement and does not increase the land area by more than 50 percent.
c) Any government property improvement added under the amendment does not increase the area of the gross building space by more than 100 percent.
3. Stipulates that for the purposes of determining the functional area of a government property improvement, the exclusion of subsidiary, auxiliary or servient areas only applies to grandfathered leases.
New Leases
4. Establishes new GPLET base rates for leases or development agreements entered into beginning June 1, 2010 and that do not meet the grandfathering conditions:
|
Type of Property |
Current Tax Rate |
Proposed Tax Rate |
|
One-story Office Buildings |
$1.00 per square foot |
$2.00 per square foot |
|
2-7 story Office Buildings |
$1.25 per square foot |
$2.00 per square foot |
|
8 or more story Office Buildings |
$1.75 per square foot |
$3.00 per square foot |
|
Retail Buildings |
$1.50 per square foot |
$2.50 per square foot |
|
Hotel/Motel Buildings |
$1.50 per square foot |
$2.00 per square foot |
|
Warehouse or Industrial Buildings |
$0.75 per square foot |
$1.35 per square foot |
|
Residential Rental Buildings |
$0.50 per square foot |
$0.76 per square foot |
|
Parking Garages |
$100 per parking space |
$200 per parking space |
|
Other Buildings |
$1.00 per square foot |
$2.00 per square foot |
5. Requires DOR, beginning December 1, 2011, to annually adjust the tax rates for each property use according to the average percentage change for the two most recent years in the producer price index for new construction.
6. Requires DOR, by December 15 of each year, to post the adjusted rates for the following calendar year on its official website and transmit them to each county treasurer.
7. Specifies that the new rates in the table above, as adjusted annually, apply if the aggregate of all ad valorem property tax rates of all taxing jurisdictions in which the government property improvement is located is within 90 and 110 percent of the county-wide average combined property tax rates in the tax year in which the GPLET lease is entered into.
8. Requires the new GPLET rates to be reduced by 10 percent if, in the tax year in which the GPLET lease is entered into, the aggregate of all ad valorem property tax rates of all taxing jurisdictions in which the government property improvement is located is less than 90 percent of the county-wide average combined property tax rates.
9. Prohibits a government lessor, after May 31, 2010, from approving a new lease or development agreement for a government property improvement located in a slum or blighted area and that does not meet the grandfathering requirements unless the government lessor:
a) Notifies the governing bodies of the county and any city, town and school district in which the government property improvement is located at least 60 days before the approval.
b) Determines that the economic and fiscal benefit to the state and county, city or town in which the government property improvement is located will exceed the benefits received by the prime lessee, as determined by an estimate prepared by an independent third party. A lease or development agreement for residential rental housing is exempt from this provision.
c) Approves the lease or development agreement by a simple majority vote without the use of a consent calendar.
10. Requires a lease or development agreement entered into after May 31, 2010, that does not meet the grandfathering requirements and that is located in a slum or blighted area to begin within 10 years after the approval of the development agreement. The maximum term of the lease is 25 years, including any abatement period, regardless of whether the lease is transferred.
11. Requires the government lessor to convey title to the government property improvement and underlying land to the prime lessee as soon as practicable, but within 12 months after the lease’s expiration.
12. Prohibits the property from subsequent classification as Class 6 property or from any other discounted assessment.
13. Exempts new leases from the above requirements for properties in slum or blighted areas that do not meet the grandfathering requirements if the government lessor is acting as a commercial landlord for a use ancillary to a public purpose.
Abatement
14. Allows, instead of requires, the GPLET to be abated if the property meets the requirements for the abatement.
15. Modifies the requirements for the abatement of the GPLET, as follows:
a) Prohibits a city or town from designating more than one central business district within its corporate boundaries.
b) Prohibits a city or town from approving a new lease or development agreement within one year of making the designation of the central business district.
c) Defines central business district to mean a geographically compact area that is no larger than the lesser of 5 percent of the total land area within the exterior boundaries of the city or town or 640 acres, designated by the resolution of the governing body and located entirely with a slum or blighted area.
16. Requires the prime lessee to notify the country treasurer and the government lessor when applying for abatement.
17. Sets forth requirements for the approval of leases or development agreements entered into on or after June 1, 2010, that do not meet the grandfathering conditions and for which the tax is abated:
a) Requires the approval of a simple majority vote of the governing body without the use of a consent calendar.
b) Requires the government lessor to notify the governing bodies of the county and any city, town and school district in which the improvement is located at least 60 days before the approval.
c) Requires the government lessor to determine that the lease will economically and fiscally benefit the state, county and municipality more than it will benefit the prime lessee, as determined by an estimate prepared by an independent third party. A lease or development agreement for residential rental housing is exempt from this provision.
d) Prohibits the government lessor from changing the use of the government property improvement during the period of abatement unless the government lessor:
18. Exempts nonabated properties from the requirements for the approval of new leases for which the tax is abated if a government lessor is acting as a commercial landlord for an improvement used for a public purpose.
Reporting Requirements
19. Requires the government lessor, within 30 days of entering into a lease for the occupancy of the government property improvement, to:
a) Record a memorandum of lease in the office of the county recorder in the county in which the government property improvement is located.
b) Submit to the country treasurer and the Department of Revenue (DOR) copies of the lease or an abstract of the lease.
20. Requires DOR to maintain a public database by city, town and county of all government property leases that are subject to the GPLET.
21. Requires the county assessor, upon becoming aware of a government property improvement that is or should be subject to the GPLET, to notify the county treasurer and DOR for confirmation that the improvement is included in their databases.
22. Requires the country treasurer to submit a report by February 15 of each year to DOR of all returns and payments received for the preceding calendar year.
Special Audit and Analysis
23. Requires the Auditor General to conduct a special audit in 2015 to determine whether the GPLET achieves the goal of providing a viable revenue stream for counties, cities, towns, school districts and community college districts in which government property improvements are leased. The special audit will be paid for with GPLET revenues.
24. Requires copies of the Auditor General report to be provided to the Governor, the President of the Senate, the Speaker of the House of Representatives, the Chairpersons of the Ways and Means Committee and the Senate Finance Committee, the Secretary of State and the Secretary of State.
25. Directs the Joint Legislative Budget Committee (JLBC) to conduct an analysis by December 15, 2016, to determine the effectiveness of the new GPLET rates prescribed by this act and outlines the items that must be considered by JLBC.
26. Requires copies of the JLBC analysis to be provided to the Governor, the President of the Senate, the Speaker of the House of Representatives, the Chairpersons of the Ways and Means Committee and the Senate Finance Committee, the Secretary of State and the Secretary of State.
Miscellaneous
27. Requires the country treasurer, instead of the government lessor, to collect the GPLET.
28. Requires the county treasurer to distribute all monies collected as delinquent or back taxes as regularly distributed except that any interest and penalties are credited to the county general fund.
29. Adds rental car operations to the list of exemptions related to property used for or in connection with aviation.
30. Becomes effective on the general effective date.
Amendments Adopted by the Finance Committee
1. Lowers the term of leases subject to abatement to 20 years.
2. Provides rates for all new leases.
Amendments Adopted by the Committee of the Whole
1. Raises the statutorily set rates for all new leases or development agreements, including providing for reduced rates depending on aggregate property tax rates of the applicable county.
2. Grandfathers in leases or development agreements entered into before June 1, 2010, that are approved by the governing body provided that certain conditions are met.
3. Adds additional requirements for new leases in slum or blighted areas that do not meeting the grandfathering requirements.
4. Requires a JLBC analysis in 2016.
House Action Senate Action
WM 2/22/10 DPA 6-1-0-1 FIN 3/7/10 DPA 6-2-0-0
3rd Read 4/1/10 50-4-6-0 3rd Read 4/29/10 26-1-3-0
Final Read 4/29/10 54-3-3-0
Signed by the Governor 5/11/10
Chapter 321
Prepared by Senate Research
May 19, 2010
BJB/ly