Editor’s note: NAIOP’s Government Affairs team will periodically highlight the legislative successes of our chapters at the state and local levels. This segment features NAIOP Arizona’s effective advocacy at the state level in 2018.
Arizona is growing economically, and the commercial real estate industry is a key player driving that growth. To help keep the state on the right track, NAIOP Arizona successfully weighed in on several important issues that involve commercial real estate during the 2018 state legislative session, which adjourned on May 4.
NAIOP’s number one legislative issue in the state heading into 2018 was to improve the property tax system. Other top priorities include opposing taxes, fees and regulations that could increase costs for CRE, as well as preserving existing economic development tools. Overall, NAIOP Arizona’s advocacy efforts on behalf of the commercial real estate industry were extremely successful.
Major Legislative Wins:
GPLET Reform (HB 2126)
The biggest issue NAIOP Arizona worked on this session was the effort to reform Government Property Lease Excise Taxes, otherwise known as GPLETs. What began as a continuation of last year’s discussion of the definition of “slum and blighted” land evolved into a debate over the size and shape of cities’ Central Business Districts (CBDs). This effort eventually became HB 2126, introduced by Rep. Vince Leach, R-Tucson.
Throughout the process, NAIOP Arizona successfully lobbied to ensure existing GPLET projects are protected, while supporting efforts to increase the integrity of the program. The final bill was the result of an agreement among all parties. It caps CBDs at 2.5 percent of a city’s total land area, requires CBDs to be geographically compact and stipulates that CBDs be reviewed every 10 years. The bill grandfathers existing CBDs and GPLET projects as well as protects future GPLET deals from being undercut by changing CBD boundaries. HB 2126 passed the legislature unanimously and was signed by Governor Doug Ducey.
Construction Contract Indemnification (SB 1271)
Another hotly-debated topic this legislative session was the allocation of liability for construction defects. NAIOP Arizona opposed SB 1271 as introduced because it would have limited indemnity agreements in construction contracts and prohibited contractors from requiring subcontractors to hold them harmless except in specific cases of a subcontractor’s negligence. The bill was amended to allow alleged construction defects to be fixed or corrected prior to tenant occupancy, and to allow each party to shoulder proportionate liability based a party’s degree of fault. This new language was amended again to create the Construction Liability Apportionment Study Committee. The final bill, which reflects NAIOP’s preferred approach, passed the state Senate and House easily and awaits action by the governor.
Construction Sales Taxes (SB 1409)
This year, NAIOP Arizona’s advocacy helped clarify the taxation of “alteration” activities. Alterations are generally taxed at point-of-sale but can be taxed as prime contracting if certain triggers are met. Contractors claimed that this system creates confusion and the potential for double taxation. The initial measure, SB 1409, also had the support of cities looking to collect more taxes.
NAIOP Arizona actively opposed SB 1409, because taxing alterations as prime contracting versus point of sale would greatly increase costs for building owners and developers. Our chapter’s lobbying helped ensure SB 1409 was amended to a) keep most alterations taxed at point of sale and b) remove some of the triggering events opposed by the contractors. The legislation awaits action by the governor.
Teacher Pay Raise
Workforce development is an important issue for the CRE industry. NAIOP supported Governor Ducey’s “20 by 2020” plan to greatly increase teacher salaries. At the end of a week-long teacher walkout that gained national attention, the legislature passed, and the governor signed, a state budget that provides significant new funds for teacher and staff salaries.
Property Tax Appeals (HB 2385)
NAIOP Arizona supported legislation to prohibit courts, in property tax appeals filed by county assessors, from assigning a full cash value that is higher than the initial value being appealed by the taxpayer. This was passed and signed by the governor.
All these legislative successes are the result of detailed advocacy and engagement in the political process. NAIOP Arizona’s lobbying helped to broker complex negotiations to deliver economic development tools and better state tax policies. We also helped prevent the enactment of bills that would have resulted in costly new legal liabilities and tax shifts. NAIOP Arizona looks forward to working with lawmakers in the future to make sure Arizona remains a great place to build.