Q&A With NAIOP-AZ President Tim Lawless: The Impact Of HB 2001
Q&A with NAIOP-AZ President Tim Lawless who discusses HB 2001, commercial property tax and how the commercial real estate industry is affected by these tax cuts
Recently, the Arizona State Legislature passed the most sweeping economic development/job recovery bill in years (HB 2001). It included a number of phased tax cuts and tax credits for businesses along with a deal-closing fund to attract high wage firms to Arizona.
Q: WHAT WERE THE SPECIFICS?
Specifically, the corporate assessment ratio used to calculate commercial property taxes will be reduced from 20% to 19.5% in 2013, 19% in 2014, 18.5% in 2015, and 18% in 2016. Moreover, the current corporate income tax rate of 6.968% will be reduced over four years to 4.9%. The $25M “deal-closing fund” (the Arizona Competes Fund) partially derived from lottery revenues will also give the privatized Arizona Commerce Authority (ACA) a key tool in landing firms that may need a nudge in deciding between finalist states for relocation or regional expansion decisions.
Q: WHAT DOES IT MEAN FOR THE COMMERCIAL REAL ESTATE INDUSTRY?
Significantly, NAIOP-AZ’s top three priorities to: 1) reform our uncompetitive commercial property tax system; 2) to lower our corporate income tax rate; and 3) to enact a deal-closing fund to attract new firms to the state are all contained in the law. This is a remarkable turn of events for our industry. NAIOP-AZ helped lead the fight six years ago to begin lowering the property tax assessment ratio from 25% to 20%, which resulted in more than a billion dollars in property tax savings to businesses over this time. More needs to be done but we have successfully addressed the single biggest impediment to job creation in our state — high uncompetitive property taxes for commercial real estate.
Q: WHERE WILL WE RANK NOW COMPARED TO OTHER STATES?
The corporate income tax rate reduction down to 4.9% will bring us more in line with our Western state competitors (some of whom who do not have a corporate income tax) and give us the fifth lowest rate in the nation. We also are now seeing the fruits of our labor as we have moved from having among the top five worst business property tax burdens in the U.S. to currently 15th and with these changes we expect to move to the middle of the pack by 2016, which is more where we should have been all along.
Q: WON’T THE DECREASE IN BUSINESS PROPERTY TAXES BE SHIFTED TO HOMEOWNERS?
No, this was not the intent of the legislation. In order to address the issue of perceived shifts in taxation to residents, legislators agreed to toggle the “Homeowners Rebate” upward in the future per calculations from the Dept. of Revenue and to help finance this impact to the State General Fund by reforming the Homeowners Rebate for those that illegally take it on multiple homes that are not their primary residence and those homes that are vacant and in foreclosure. In short, those who are most deserving get a bump and those that are abusing the credit get dumped.
Q: WHAT BIG ISSUES ARE ON THE HORIZON FOR COMMERCIAL REAL ESTATE?”
The eventual sunset of the recent sales tax increase will exacerbate a structural budget deficit for our state should it prove politically untenable to cut base spending levels more than they have already. As a result, the spending lobby will be looking to raise almost a billion dollars, especially for K-12 education, at the ballot next year. Initial ideas are to either make permanent the temporary sales tax rate increase; to increase the sales tax to currently exempt goods and services; and/or to institute a new statewide property tax. Because commercial property tax rates are still considerably more than what residents pay, NAIOP-AZ would certainly fight the specific alternative to raise a new statewide property tax. This would erase all the progress we have made the last six years in making our state more competitive for job creation. The proposed expansion of the sales tax base to exempt goods and services would also bear close watching as some proposals may make commercial lease sales subject to state taxation again which would be a hindrance to economic recovery for our industry and in turn for the state.
Q: HOW WOULD YOU SUM UP THE ACCOMPLISHMENTS THIS SESSION?
Hopefully, the measures passed in the recent “Jobs Bill” will give your readers, our members and businesses in general the confidence that Arizona is a great state to locate, invest, and expand.