After getting railroaded in the late 19th century and losing large sums of public money, the founding fathers of Arizona’s constitution included specific language to prevent State and local governments from handing out special deals to taxpayers that serve no legitimate government purpose.
Unfortunately, constitutional concerns have not stopped municipalities and politically connected developers over the last two decades from exploiting a property tax scheme to avoid paying taxes while everyone else is forced to make up the difference.
Government Property Lease Excise Tax (GPLET, pronounced jeep-let) allows local cities who own property to turn around and lease that property to a private entity. Because government property is not eligible for property taxes, the private entity instead pays a GPLET, or a lease tax, at a significantly lower rate than everyone else.
The GPLET, unlike a property tax, is not based upon objective standards of assessed market value, but on other factors such as square footage and primary use. This means the lessee (i.e. politically connected developer) basically gets to determine what they pay.
Effectively this has created a swiss cheese tax environment where a commercial project on one side of the street pays the full 18 percent commercial property tax rate while their neighbor pays zilch. Because local school districts, hospital districts, and counties rely on property taxes for revenues, GPLETs leave gaping holes in the general fund which must then be back-filled by state government and/or higher property tax rates paid by surrounding businesses and residents. In the case of the City of Phoenix, $1.5 billion worth of development is not on the tax rolls.
The constitutionality of these sweetheart deals have always been questioned, which is why the Goldwater institute has filed suit to finally bring GPLET to an end.
The challenge cites four different violations of Arizona’s Constitution. One provision, passed by voters in the 1980s, clarifies that no property shall by exempt from property taxes and prohibits the conveyance of property for the purpose of evading property taxes.
The second provision GPLET violates is the Gift Clause, which bans state and local government from lending or giving money to private enterprises when the government does not receive something of adequate value in return.
Thirdly, Arizona has a “Uniformity Clause” which is meant to ensure an equitable tax environment for all its tax payers. Under the Uniformity Clause, properties within the same classification should be taxed at similar rates. Under the GPLET system, similar office buildings could be paying no property taxes, the GPLET rate, or full property tax value.
Lastly, the “Special Law Clause” within the Arizona Constitution limits the government’s ability to pass laws that “grant special or exclusive privileges, immunities, or franchises.” When laws are made, they must apply to a classification that is legitimate in nature and allows for members to move in and out of the classification. GPLETs are hand selected by government bureaucrats; and are so exclusive they apply to singular developments (essentially classifications of one,) excluding members who should be a part of the same classification.
Supporters of GPLET have railed against reforms at the legislature for years and practically dared someone to take them to court. Now Goldwater has taken them up on their challenge, and given their track record and the courts increasing skepticism of taxpayer subsidies, we predict a quick death for the GPLET program.