Property Tax

Tempe GPLET tax break to private developer may go to Arizona Supreme Court

(Source: AZCentral): Jerod MacDonald-Evoy – he Arizona Attorney General’s Office says Tempe followed the rules in giving a tax break to a hotel, but may have violated state law on another project.

The property-tax break on The Graduate Hotel in downtown Tempe adheres to state law, while the city’s tax break on a Bank of the West office building on Fountainhead Parkway was less clear, according to an AG report released Thursday.

“There is enough of a question … to warrant proceeding to the Arizona Supreme Court,” the report says.

The AG’s Office opened the investigation into the two tax breaks last month at the request of state Rep. Vince Leach, R-Tucson. Any state lawmaker can request an investigation into whether a city is complying with state law. If found in violation, the state can withhold funding until the city fixes the problem.

Leach’s concerns revolved around Tempe’s use of complicated property-tax breaks called government property lease excise tax, or GPLET . State lawmakers tightened the rules on GPLET last year. Tempe and Phoenix are the region’s two biggest users of this type of tax break to spur development.

 GPLETs basically allow cities to exempt private developments from paying property taxes in favor of lower excise tax rates.

What the AG found

Leach claimed Tempe’s tax breaks on the two developments were too much, saying the city used a low tax rate that the Arizona Legislature had largely eliminated in 2010.

To investigate his concerns, the AG looked back to 2010.

The Graduate Hotel tax break complies with state law, in part because Tempe approved an ordinance to grandfather in the lower rate on the property in May 2010, one month before the legislative change took effect, the report said.

That same month, the city passed other resolutions to grandfather in the lower rates elsewhere, but the AG found that problematic because it wasn’t site-specific, the report said. In effect, the measures designated “all of Tempe as potentially available for future GPLET leases using the grandfathered GPLET rate structure,” the report said.

Because of this, the AG asserts that the Bank of the West agreement that the city approved in 2017 using the pre-2010 rate may violate state law.

The city argues that the resolution it approved in May 2010 allows it to use the lower tax rate.

As for Leach’s other concern that Tempe did not consult with the Arizona Department of Revenue as required, the AG found no problems in how the city has handled that.

Let the high court decide

The AG’s report says ambiguity in the state law makes a final determination difficult.

“There is adequate ambiguity to warrant pursuing a special action in the Arizona Supreme Court to resolve the matter,” the report says.

No timing on how soon it could go to the high court is yet available