PHOENIX, Arizona – In 1996, the Government Property Lease Excise Tax ("GPLET") was first established by the State of Arizona as a redevelopment tool to initiate development by reducing a project's operating costs. In 2010, under the state statute, the Legislature amended GPLET laws and an excise tax rate was established for the building type of use calculated on the gross square footage of the building to replace real property taxes. The use of the excise tax cannot continue for more than twenty-five years and requires that the land and improvements be conveyed to a government entity and leased back for private use. The excise tax rate can be abated for the first eight years after a certificate of occupancy on the building is issued only for properties located within a Central Business District and a Redevelopment Area.
In 2015, the Auditor General reported that ‘although the Legislature enacted laws to increase GPLET revenues for counties, cities and towns, community college districts and other school districts, these changes may not increase revenues as expected… and improvements were needed to ensure GPLET is accurately calculated, collected, distributed and reported’.
See full Auditor General Report here.
GPLET abatements were created to revitalize “slum and blight” areas in business districts. Deals which can exist for several decades and shift property taxes to their neighbors and pit competitive businesses against each other.
GPLET is levied in lieu of property taxes when governments lease publicly-owned property to private businesses. When local governments offer property tax incentives like GPLET to developers, it deprives school districts of tax revenue. State taxpayers are forced to make up the difference through elevated payments to those school districts.
The House of Representatives this week overwhelmingly voted 50-9 to pass HB 2213, a bill sponsored by Representative Vince Leach (R-11) that closes several loopholes related to the GPLET.
After a stakeholder process resulted in significant changes from the underlying bill, several changes were applied based on recommendations from municipalities and developers and Arizona Tax Research Association ("ATRA").
As amended, HB2213 puts limits on a prospective basis, the length of GPLET deals for those receiving full property tax abatement from 25 years to a total of eight years. This means in year nine, all jurisdictions including the K-12 school districts receive the benefit of an added taxpayer and do not have to manage the complications of GPLET payments. It also includes several reforms as recommended by the Auditor General such as making the government as Lessor responsible for calculating the correct GPLET payment.
Other provisions in the amended HB2213 include restoring the existing language for qualifying areas as “slum and blight” for areas both inside and outside a single, central business district (CBD). Abatement period remains limited to 8 years, having the effect of removing years 9-25, and places the property back on the tax roll in year nine
Restores the grandfathering clause from the 2010 legislation but requires new leases which use the grandfathering provision receive validation from the Joint Legislative Budget Committee (no retroactive clause).
A list of GPLET projects and their associated rates can be found on the Arizona Department of Revenue website.