Senate Engrossed House Bill
State of Arizona
House of Representatives
Fifty-third Legislature
First Regular Session
2017
CHAPTER 120
HOUSE BILL 2213
AN ACT
Amending sections 42-6202, 42-6203, 42-6204, 42-6206 and 42-6209, Arizona Revised Statutes; relating to government property lease excise tax.
(TEXT OF BILL BEGINS ON NEXT PAGE)
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 and the department of revenue copies of the lease or an abstract of the lease.
D. The department of revenuegovernment lessor shall maintain a public database by county, city and town as applicable, or post its lease agreements on a county, city or town website where the government property improvement is located, of all government property leases 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 website.
E. 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 department of revenuegovernment lessor for confirmation that the improvement is included in their databases database. END_STATUTE
Sec. 2. Section 42-6203, Arizona Revised Statutes, is amended to read:
START_STATUTE42-6203. Rates of tax
A. Except as otherwise provided in this section, if a lease of a government property improvement was entered into before June 1, 2010, or if a development agreement, ordinance or resolution was approved by the governing body of the government lessor before June 1, 2010 that authorized a lease on the occurrence of specified conditions and the lease was entered into within ten years after the date the development agreement was entered into or the ordinance or resolution was approved by the governing body and the lease was determined by the department of revenue to be in compliance with this subsection:
1. The tax authorized by this article shall be levied and collected at the following rates:
(a) One dollar per square foot of gross building space for office buildings with one floor above ground.
(b) One dollar twenty‑five cents per square foot of gross building space for office buildings with more than one but fewer than eight floors above ground.
(c) One dollar seventy‑five cents per square foot of gross building space for office buildings with eight floors or more above ground.
(d) One dollar fifty cents per square foot of retail building space, including space that is devoted to the sale of tangible personal property, restaurants, health clubs, hair salons, dry cleaners, travel agencies and other retail services.
(e) One dollar fifty cents per square foot of hotel or motel building space.
(f) Seventy‑five cents per square foot of warehouse or industrial building space.
(g) Fifty cents per square foot of residential rental building space.
(h) One hundred dollars per parking space located in a parking garage or deck.
(i) One dollar per square foot of all other government property improvements not included in subdivisions (a) through (h) of this paragraph.
2. The tax rate for government property improvements for which the original certificate of occupancy was issued:
(a) At least ten years but less than twenty years before the date the tax is due is eighty per centpercent of the rate provided in paragraph 1 of this subsection.
(b) At least twenty years but less than thirty years before the date the tax is due is sixty per centpercent of the rate provided in paragraph 1 of this subsection.
(c) At least thirty but less than forty years before the date the tax is due is forty per centpercent of the rate provided in paragraph 1 of this subsection.
(d) At least forty but less than fifty years before the date the tax is due is twenty per centpercent of the rate provided in paragraph 1 of this subsection.
(e) Fifty or more years before the date the tax is due is zero.
3. If no certificate of occupancy can be located, dated aerial photographs or other evidence of substantial completion may be used to determine the age of the building for purposes of paragraph 2 of this subsection.
4. A lease or development agreement, originally subject to this subsection, that is subsequently amended remains subject to this subsection if the amended lease or development agreement meets all of the following requirements:
(a) The government lessor determines that the amendment furthers the original purpose of the 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 under the original lease or development agreement by more than fifty per centpercent.
(c) Any government property improvement added under the amendment does not increase the area of gross building space of government property improvements under the original lease or development agreement by more than one hundred per centpercent.
B. Except as otherwise provided in this section, if a lease of a government property improvement does not meet the conditions for applying subsection A of this section:
1. Subject to paragraphs 2 and 3 of this subsection, the tax authorized by this article shall be levied and collected at the following base rates, which apply through December 31, 2011:
(a) Two dollars per square foot of gross building space for office buildings with one floor above ground.
(b) Two dollars thirty cents per square foot of gross building space for office buildings with more than one but fewer than eight floors above ground.
(c) Three dollars ten cents per square foot of gross building space for office buildings with eight floors or more above ground.
(d) Two dollars fifty-one cents per square foot of retail building space, including space that is devoted to the sale of tangible personal property, restaurants, health clubs, hair salons, dry cleaners, travel agencies and other retail services.
(e) Two dollars per square foot of hotel or motel building space.
(f) One dollar thirty-five cents per square foot of warehouse or industrial building space.
(g) Seventy-six cents per square foot of residential rental building space.
(h) Two hundred dollars per parking space located in a parking garage or deck.
(i) Two dollars per square foot of all other government property improvements not included in subdivisions (a) through (h) of this paragraph.
2. If, in the tax year in which the lease of the government property improvement 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 at least ninety per centpercent of the countywide average combined property tax rates, the rate of tax prescribed by paragraph 1 of this subsection, as currently adjusted pursuant to paragraph 3 of this subsection, applies with respect to that government property improvement. If, in the tax year in which the lease of the government property improvement 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 ninety per centpercent of the countywide average combined property tax rates, the rate of tax prescribed by paragraph 1 of this subsection, as currently adjusted pursuant to paragraph 3 of this subsection, shall be reduced by ten per centpercent.
3. On or before December 1, 2011 and December 1 of each year thereafter, for all government property leases that are subject to this subsection, the department of revenue shall adjust the tax rates that apply under paragraphs 1 and 2 of this subsection in the following calendar year for each property use according to the average annual positive or negative percentage change for the two most recent fiscal years in the producer price index for new construction or its successor index published by the United States bureau of labor statistics. On or before December 15 of each year, the department shall post the adjusted rates for the following calendar year on its official website and transmit the adjusted rates to each county treasurer.
C. The tax rate for a government property improvement that was constructed pursuant to a lease or development agreement entered into from and after June 30, 1996 and that is located outside a slum or blighted area established pursuant to title 36, chapter 12, article 3 is one and one‑half times the rate established by subsections A and B of this section.
D. Within the first twenty years after the issuance of the original certificate of occupancy, the tax rate on the use or occupancy of a government property improvement is twenty per centpercent of the rate established in subsections A and B of this section for any of the following:
1. Government property improvements that are subject to leases or agreements that were entered into before April 1, 1985, and options and rights contained in the leases or agreements.
2. Government property improvements that are subject to leases entered into based on a redevelopment contract, as defined in section 36‑1471, entered into before April 1, 1985.
3. Government property improvements that are subject to leases entered into based on an agreement for a redevelopment project for which federal grant monies have been received and that was entered into before April 1, 1985.
4. Government property improvements that are located at an airport that was owned on or before January 1, 1988 by a county having a population of four hundred thousand persons or less or by a city or town that is located in a county having a population of four hundred thousand persons or less if the property is used primarily for manufacturing, retail, distribution, research or commercial purposes. For the purposes of this paragraph, "commercial" includes facilities for office, recreational, hotel, motel and service uses.
E. Within the first ten years after the issuance of the certificate of occupancy, the tax rate on the use or occupancy of a government property improvement that is located in a slum or blighted area established pursuant to title 36, chapter 12, article 3, that resulted or will result in an increase in property value of at least one hundred per centpercent and that is not eligible for abatement pursuant to section 42‑6209 is eighty per centpercent of the rate established in subsections A and B of this section.
F. The tax rate to be applied under subsection A or B of this section shall be determined by the predominant use to which the government property improvement is devoted, except that in all cases the tax rate prescribed by subsection A, paragraph 1, subdivision (h) or subsection B, paragraph 1, subdivision (h) of this section shall be applied to any parking garage or deck. If there is no single predominant use, the tax shall be determined by applying the appropriate tax rate to the building space devoted to each use identified in that subsection. For the purposes of this subsection, in applying the tax rates under subsection A of this section the functional area of a government property improvement does not include subsidiary, auxiliary or servient areas such as lobbies, stairwells, mechanical rooms and meeting and banquet rooms. For the purposes of this subsection, "predominant use" means the use to which eighty‑five per centpercent or more of the functional area of a government property improvement is devoted.
G. Prime lessees of government property improvements who become taxable or whose taxable status terminates during the calendar year in which the taxes are due, including prime lessees subject to exemption or abatement under sections 42‑6208 and 42‑6209, shall pay tax for that calendar year on a pro rata basis. END_STATUTE
Sec. 3. 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 prime lessee, if subject to the tax or qualified for an abatement under this article, shallThe 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 government lessorprime lessee. If the prime lessee is exempt from the tax pursuant to section 42‑6208, the primelesseegovernment 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 42‑112342-18053 until it is paid. Interest on overpayments accrues at the rate and in the manner prescribed by section 42‑112342-18053 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.
2. Each government lessor 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 pursuant to paragraph 1 of this subsection.
3. 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. 4. Section 42-6206, Arizona Revised Statutes, is amended to read:
START_STATUTE42-6206. Leases and development agreements; notice of tax liability; approval requirements; default
A. Each lease or development agreement between a prime lessee and a government lessor entered into after June 30, 1996 shall include:
1. A notice of the tax liability under this article.
2. A provision that failure by the prime lessee to pay the tax after notice and an opportunity to cure is an event of default that could result in divesting the prime lessee of any interest in or right of occupancy of the government property improvement.
B. Except as provided by subsection C of this section, each lease or development agreement between a prime lessee and a government lessor for a government property improvement located in a slum or blighted area that is established pursuant to title 36, chapter 12, article 3, that is entered into from and after May 31, 2010 and that does not meet the conditions provided in section 42‑6203, subsection A:
1. Shall not be approved 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 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.
(b) 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 subdivision subsection.
2. Must be approved by a simple majority vote of the governing body without the use of a consent calendar.
C. A lease or development agreement that is subject to subsection B of this section must provide that the lease begins within ten years after approval of the development agreement and the term of the lease does not exceed twenty-five years, including any abatement period authorized under section 42‑6209, and 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 underlying land unless the parcel is controlled by an airport subject to federal regulation or by the local federal transit authority. Property conveyed to the prime lessee under this subdivisionsubsection does not qualify for classification as class six property or for any other discounted assessment regardless of the location or condition of the property.
D. Subsections B and C of this section do not apply if 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. No later than June 30 of each year the government lessor shall provide the county assessor with a complete list of development agreements between the government lessor and the prime lessees, including the commencement and termination dates of the agreements, the names and addresses of the prime lessees and the locations of the properties that are subject to the agreements. END_STATUTE
Sec. 5. 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
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 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 meetingthat is both of the following requirements:
(i) The central business district is Located entirely within a slum or blighted area that is established pursuant to title 36, chapter 12, article 3.
(ii) The central business district is Geographically compact and no larger than the greater of five per centpercent of the total land area within the exterior boundaries of the city or town or six hundred forty acres.
2. The government property improvement resulted or will result in an increase in property value of at least one hundred per centpercent.
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 and 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 the use of 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. Notwithstanding section 42‑6206, subsection C, beginning with development agreements, ordinances or resolutions for the lease of 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 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 the development agreements for the lease of 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
APPROVED BY THE GOVERNOR MARCH 30, 2017.
FILED IN THE OFFICE OF THE SECRETARY OF STATE MARCH 30, 2017.