HB2309 - 562R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 42-6202, Arizona Revised Statutes, is amended to read:

START_STATUTE42-6202. Commercial government property lease excise tax; database

A. A government lessor shall levy and the county treasurer shall collect an annual excise tax on each prime lessee for the use or occupancy of each government lessor's government property improvement.

B. A government lessor may not own or operate a government property improvement unless one of the following applies:

1. The improvement is subject to the government property lease excise tax under this article with respect to the improvement.

2. The improvement is exempt from tax under section 42-6208.

3. Tax on the improvement has been abated under section 42-6209.

C. Within thirty days after entering into a lease for the occupancy of a government property improvement, the government lessor shall:

1. Record a memorandum of lease in the office of the county recorder in the county in which the government property improvement is located. The memorandum of lease must include the basic lease terms, including the names of the parties, the leased property, the lease term, including the beginning and ending dates, and any options to renew the lease or to purchase any of the government property improvement or government owned land.

2. Submit to the county treasurer copies of the lease or an abstract of the lease.

3. Include the lease or an abstract of the lease in the public database as described in subsection D of this section.

D. The government lessor shall maintain a public database by county, city and town, as applicable, or post its lease agreements and development agreements on a the website of the county, city or town website where the government property improvement is located, of all government property leases and development agreements that are subject to the tax under this article.

E. The government lessor shall submit a current link to the public database as described in subsection D of this section to the department of revenue and notify the department when the database no longer contains any active leases.

F. The department of revenue shall place links to all of the government lessors' databases with active leases on their the department's website.

G. If a county assessor becomes aware of a government property improvement that is or should be subject to the tax under this article, the assessor shall notify the county treasurer and the government lessor for confirmation that the improvement is included in their the government lessor's database. END_STATUTE

Sec. 2. Section 42-6204, Arizona Revised Statutes, is amended to read:

START_STATUTE42-6204. Payment; return; interest; penalty; annual reports

A. The taxes that are levied pursuant to this article are:

1. Due and payable to the county treasurer annually on or before December 1.

2. Delinquent if not paid on or before that date.

B. The government lessor shall calculate the excise tax for each prime lessee, submit a return to the county treasurer on a return form prescribed by the department of revenue and submit a copy of the return to the prime lessee. If the prime lessee is exempt from the tax pursuant to section 42-6208, the government lessor shall keep and maintain the information required in this subsection. The return form shall be made available by the county treasurer at least sixty days before the taxes are due and payable and shall include:

1. The name and address of the prime lessee.

2. The location of the government property improvement.

3. The amount of gross building space or number of parking garage or deck spaces. The prime lessee may submit an initial statement of gross building space that is certified by a person who is professionally credentialed in this state as an architect, general contractor, surveyor or appraiser and thereafter shall file an annual statement with the return, under penalty of perjury, that the gross building space is unchanged from the amount previously certified.

4. The date of the original certificate of occupancy.

5. The use or uses of the property.

6. If an abatement under section 42-6209 applies, a certification under penalty of perjury that all elements necessary to qualify for the abatement are satisfied for the year covered by the return.

7. Any other pertinent information that is required by the return form.

C. If any part of the tax is not paid before it becomes delinquent, interest accrues on the unpaid amount at the rate and in the manner prescribed by section 42-18053 until it is paid. Interest on overpayments accrues at the rate and in the manner prescribed by section 42-18053 until the refund is paid by the county treasurer.

D. The county treasurer shall assess and collect a penalty of five percent of any part of the tax that is not paid before it becomes delinquent.

E. The county treasurer shall issue a receipt to the government lessor and prime lessee for payments under this article.

F. On or before February 15 of each year, the county treasurer shall submit a report to:

1. The department of revenue of all returns and payments received for the preceding calendar year under this section. The report shall be in a form and contain data prescribed by the department of revenue and shall be posted on the department's website.

2. The joint legislative budget committee of all returns and payments received for the preceding calendar year with respect to leases of government property improvements owned by the government lessor. These reports shall contain the same data prescribed in paragraph 1 of this subsection.

G. The county treasurer is entitled to rely on any information contained in any abatement certification described in subsection B, paragraph 6 of this section unless the county treasurer has actual knowledge that the certification is inaccurate. END_STATUTE

Sec. 3. Section 42-6209, Arizona Revised Statutes, is amended to read:

START_STATUTE42-6209. Abatement of tax for government property improvements in single central business district; definition

A. A city or town may abate the tax provided for under this article for a limited period beginning when the certificate of occupancy is issued and ending eight not more than four years after the certificate of occupancy is issued on a government property improvement that is constructed either before or after July 20, 1996 and that meets the following requirements:

1. The improvement is located in a single central business district in the city or town and is subject to a lease or development agreement entered into on or after April 1, 1985. For the purposes of this section:

(a) A city or town shall not designate more than one central business district within its corporate boundaries.

(b) A city or town shall not approve or enter into a development agreement or lease for a government property improvement within one year after the designation of the central business district in which the improvement is located.

(c) "Central business district" means a single and contiguous geographical area that is designated by resolution of the governing body of the city or town and that is geographically compact and not larger than the greatest of the existing total land area of the central business district of the city or town as of January 1, 2018, two and one-half percent of the total land area within the exterior boundaries of the city or town or nine hundred sixty acres. For the purposes of this subdivision, any central business district formed before January 1, 2018 is considered to be geographically compact. For the expanded areas of an existing central business district only and the new designation of a central business district formed on or after January 1, 2018 and for the purposes of this subdivision, "geographically compact" means a form or shape that has a length that is not more than twice its width as measured from at least four points on the exterior boundary of the expanded areas of an existing central business district or a central business district formed on or after January 1, 2018.

2. The improvement is located entirely within a slum or blighted area that is designated pursuant to title 36, chapter 12, article 3.

3. The government property improvement resulted or will result in an increase in property value of at least one hundred percent.

B. The prime lessee shall notify the county treasurer and the government lessor and apply for the abatement before the taxes under this article are due and payable in the first year after the certificate of occupancy is issued.

C. Except as provided by subsection D of this section, each lease between a prime lessee and a government lessor for which the tax is abated under this section that is entered into from and after May 31, 2010, and that does not meet the conditions provided in section 42-6203, subsection A must be approved by a simple majority vote of the governing body without using a consent calendar and shall not be approved unless:

1. The government lessor notifies the governing bodies of the county and any city, town and school district in which the government property improvement is located at least sixty days before the approval. The notice must include the name and address of the intended prime lessee, the location and proposed use of the government property improvement and the proposed term of the lease or development agreement.

2. The government lessor determines that, within the term of the lease or development agreement, the economic and fiscal benefit to this state and the county, city or town in which the government property improvement is located will exceed the benefits received by the prime lessee as a result of the development agreement or lease on the basis of an estimate of those benefits prepared by an independent third party in a manner and method acceptable to the governing body of the government lessor. The estimate must be provided to the government lessor and the governing bodies of the county and any city, town and school district in which the government property improvement is located at least thirty days before the vote of the governing body. A lease or development agreement between a prime lessee and a government lessor involving residential rental housing is exempt from the economic estimate analysis requirements of this paragraph.

3. The lease or development agreement provides that the government lessor may not approve an amendment to change the use of the government property improvement during the period of abatement unless:

(a) The government lessor notifies the governing bodies of the county and any city, town and school district in which the government property improvement is located at least sixty days before the approval. The notice must include the name and address of the prime lessee, the location and proposed use of the government property improvement and the remaining term of the lease or development agreement.

(b) The government lessor determines that, within the remaining term of the lease or development agreement, the economic and fiscal benefit to this state and the county, city or town in which the government property improvement is located will exceed the benefits received by the prime lessee as a result of the change in the lease or development agreement on the basis of an estimate of those benefits prepared by an independent third party in a manner and method acceptable to the governing body of the government lessor. The estimate must be provided to the government lessor and the governing bodies of the county and any city, town and school district in which the government property improvement is located at least thirty days before the vote of the governing body. A change in use under a lease or development agreement between a prime lessee and a government lessor to residential rental housing is exempt from the economic estimate analysis requirements of this subdivision.

D. Subsection C of this section does not apply if:

1. The tax is not abated under this section.

2. The government lessor is acting as a commercial landlord without a development agreement in a lease for a use ancillary to a government property improvement used for a public purpose.

E. The designation of a slum or blighted area that is originally designated from and after September 30, 2018 and in which a central business district is located automatically terminates on the tenth anniversary after the designation unless the city or town formally renews or modifies all or part of the slum or blighted area designation. The termination of a slum or blighted area designation under this subsection does not affect any existing project described in section 35-701, paragraph 7, subdivision (a), item (ix) that is within the designated area. Before the tenth anniversary of its designation, the city or town shall review the area and, pursuant to the review, shall either renew, modify or terminate the designation. If the city or town renews or modifies the original designation, the slum or blighted area designation is subject to subsequent reviews on a ten-year cycle. If the city or town fails to renew or modify the designation, the slum or blighted area designation automatically terminates five years after the review. This subsection does not apply to leases or development agreements to lease government property if either of the following conditions is met with respect to any such excluded area:

1. The lease of the government property improvement was entered into before the termination or modification of the slum or blighted area designation.

2. A development agreement, ordinance or resolution was approved by the governing body of the government lessor before the termination or modification of the slum or blighted area designation that authorized a lease on the occurrence of specified conditions and the lease was entered into within five years after the date the development agreement was entered into or the ordinance or resolution was approved by the governing body.

F. Before October 1, 2020, each city or town shall review the designation of each slum or blighted area that was originally designated before September 30, 2018 and in which a central business district is located. All such slum or blighted areas in which a central business district is located are considered to be valid. Pursuant to the review, the city or town shall either renew, modify or terminate the designation. If the city or town renews or modifies the original designation, the slum or blighted area designation is subject to subsequent reviews on a ten-year cycle. If the city or town fails to renew or modify the designation, the slum or blighted area designation automatically terminates from and after September 30, 2025, or five years after any subsequent review. The termination of a slum or blighted area designation under this subsection does not affect:

1. Any existing project described in section 35-701, paragraph 7, subdivision (a), item (ix) that is within the designated area.

2. Any lease or development agreement to lease government property if either of the following conditions is met with respect to the slum or blighted area:

(a) The lease of the government property improvement was entered into before the termination or modification of the slum or blighted area designation.

(b) A development agreement, ordinance or resolution was approved by the governing body of the government lessor before the termination or modification of the slum or blighted area designation that authorized a lease on the occurrence of specified conditions and the lease was entered into within five years after the date the development agreement was entered into or the ordinance or resolution was approved by the governing body.

G. Notwithstanding section 42-6206, subsection C, beginning with development agreements, ordinances or resolutions to lease government property improvements approved by the governing body of the government lessor from and after December 31, 2016, the lease period for a property for which the tax is abated under this section may not exceed eight four years, including any abatement period, regardless of whether the lease is transferred or conveyed to subsequent prime lessees during that period. As soon as reasonably practicable but within twelve months after the expiration date of the lease, the government lessor must convey to the current prime lessee title to the government property improvement and the underlying land. Property conveyed to the prime lessee under this subsection does not qualify for classification as class six property or for any other discounted assessment regardless of the location or condition of the property. This subsection does not apply to leases or development agreements to lease government property if either of the following occurred before January 1, 2017:

1. A corresponding resolution or ordinance for the lease or intent to lease such property subject to this section was approved by the governing body of the government lessor.

2. A proposal was submitted to the government lessor in response to a request for proposals. END_STATUTE

Sec. 4. Applicability

Section 42-6209, Arizona Revised Statutes, as amended by this act, applies to agreements entered into from and after December 31, 2024.