2012 Arizona Commercial Real Estate Public Policy Wrap Up (NAIOP-AZ)

Considering the 50th state legislative session wrapped up late yesterday and state legislators are in the process of running for re-election come November, now is a good time to provide a summary of issues of importance to our industry. In no particular order, our NAIOP-AZ priorities were to: 1) curb metal theft, especially the growing problem of air conditioner damage on commercial property; 2) to advance a property tax reform measure to the ballot this November in order to better control the cost of doing business; and 3) to advance an economic development tax package in order to attract more high wage jobs to our state. The following is a brief synopsis of each topic…

Source: Email message distributed to NAIOP-AZ Members by Tim Lawless, President (posted by permission)

May 4, 2012 – Phoenix, Arizona

Considering the 50th state legislative session wrapped up late yesterday and state legislators are in the process of running for re-election come November, now is a good time to provide a summary of issues of importance to our industry. In no particular order, our NAIOP-AZ priorities were to: 1) curb metal theft, especially the growing problem of air conditioner damage on commercial property; 2) to advance a property tax reform measure to the ballot this November in order to better control the cost of doing business; and 3) to advance an economic development tax package in order to attract more high wage jobs to our state. The following is a brief synopsis of each topic:

METAL/COPPER THEFT PREVENTION (HB 2396/HB 2395)

Two bills were advanced this session. One of them (HB 2396) increased the penalties for theft from a misdemeanor to a felony by charging thieves with the value of damage to property caused by the theft rather than charging them only with the much lesser economic value of the copper stolen. This bill was signed into law on March 21 and was strongly supported by NAIOP-AZ. The other bill (HB 2395) was designed to ban air conditioners and the components from being turned into scrap dealers which was advanced by the City of PHX PD, the Attorney General, east valley developer Michael Pollack, and NAIOP-AZ among others. Given the strong opposition of the scrap dealers, a “compromise” was advanced to only ban commercial air conditioners rather than residential. While all involved recognized that it is difficult to distinguish most air conditioner components used in either a residential and commercial setting and often the same types of smaller units are used in both, NAIOP-AZ reluctantly agreed to the “compromise” as it was clear the larger residential ban would not advance in the House considering key legislators were against regulating the scrap business. While we had the votes to enact this more limited ban into law, the City of PHX and the Attorney General asked that the bill be held in the State Senate and the issue killed for the year as they felt it would be better to start over next year from scratch again when some of the key legislators opposed to the residential ban retire from the Legislature. It is our feeling enough education on the issue has transpired that a full ban has an excellent prospect for being passed next year.

PROPERTY TAX REFORM (SCR 1025)

The Arizona Tax Research Association (ATRA) successfully led the effort to pass SCR 1025 through the Legislature this session which caps residential and commercial property tax valuation increases to no more than 5% each year. This measure was advanced largely to bring more predictability into the system for businesses, homeowners, and local units of government. For example, it is designed to avoid again the situation from 2006-2008 where secondary net assessed values increased 48.4% alone in the City of PHX which led to a 59% secondary levy increase for all types of property, much of which was borne by the commercial sector given our much higher “assessment ratio” used as a formula factor in helping to calculate tax liability.

In a letter that NAIOP-AZ issued to entire State Legislature in support, we wrote: “Arizona has one of the most complicated property tax systems in the country. We believe this property tax reform proposal will both simplify and stabilize Arizona’s property tax system.

Arizona’s property tax system, which employs multiple sets of taxable values, has been the subject of considerable criticism for decades. The two sets of taxable values (secondary and primary) largely serve to confuse property taxpayers. For the first time in decades, these two taxable values are now almost identical due to the dramatic decline in the real estate market. As a result, Arizona lawmakers have a rare opportunity to limit the taxation of property to just one value without negatively impacting local government budgets.

Currently, there is no limit on the annual growth in secondary values. The lack of any limit in the growth of secondary values added considerably to the volatility that characterized Arizona’s property tax system over the last decade. SCR 1025 will limit the taxation of property to one value (primary), which will be limited to 5% annual growth. This measure will not only increase the stability of Arizona’s property tax system but also provide greater predictability for both government and taxpayers.

We strongly encourage the Arizona Legislature to take advantage of the opportunity to simplify this system that has been in place since 1980.” SCR 1025 now goes to the people for approval and will appear as Proposition 117 on the November state ballot.

ECONOMIC DEVELOPMENT TAX PACKAGE (HB 2815)

For the second consecutive year, the Legislature has passed a multi-faceted “Jobs Bill” to get our state moving again. While the “Jobs Bill” last year was a more broad-based effort, this year’s competitiveness package, HB 2815, is more surgical and geared more for small business entrepreneurs. A wide swath of the entire business community supported to various degrees the different omnibus components and the overall effort was advanced by the Arizona Chamber of Commerce & Industry which NAIOP-AZ supported as well. Just below are the primary provisions contained in the package (courtesy of ATRA).

  • Net Operating Loss-NOL:
    ATRA’s legislation, originally sponsored by Senator Reagan, extends the NOL carry forward under the corporate income tax to conform to the federal code from 5 to 20 years. Effective for NOL’s arising in taxable periods beginning in 2012.
  • Personal property tax exemption-indexing:
    Revises the inflation adjustment for the $50,000 personal property exemption. According to the Arizona Department of Revenue, the current inflation-adjusted exemption amount of $68,079 will increase to $125,700, effective for tax year 2013.
  • Bonus depreciation:
    Allows a subtraction from individual income tax of 10% of the IRC bonus depreciation for assets placed in service for tax year 2012.
  • Capital gains:
    Provides a subtraction from individual income tax for long-term capital gains at the following amounts: 10% for FY 2014; 20% for FY 2015; and 25% for FY 2016. (The measure includes not only stocks and bonds held over a year but also real estate transactions and therefore mirrors what is currently covered in federal law.)
  • Last year’s quality jobs bill:
    Caps the tax credit for any one taxpayer at $30 million for the existing renewable energy tax credit and $30 million for a new qualified facility tax credit, with the aggregate cap at $70 million.

It is important to note that HB 2815 was paired the last day of session with another bill, SB 1442, designed to help large manufacturers locate and expand in our state by allowing local units of government to “TIF” against the expected prime contracting sales tax revenue associated with the project for local infrastructure development like sewer and water. This proposal was heavily pushed by the City of Chandler and Intel Corporation. The cap for eligible manufacturing projects is $500M in Maricopa County and at least $50M in rural communities.

The Governor has until May 15th to act separately on HB 2815 and SB 1442 before they become law upon the various effective dates.

Tim Lawless
President NAIOP-AZ
www.naiop-az.org

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