Allegations by the Arizona attorney general about for-profit businesses escaping property taxes by being on ASU property has drawn controversy from downtown residents.
In January, Arizona attorney general Mark Brnovich filed a second lawsuit against the Arizona Board of Regents (ABOR) alleging a misuse of ABOR’s tax-exempt status by allowing for-profit companies to build on public university land.
Jeff Sherman, the chair of Downtown Voices Coalition, said Government Property Lease Excise Tax (GPLET) was originally created as a way for businesses operating on government land to pay an excise tax, since they do not pay normal property taxes.
“ASU at a minimum should follow the same standard as state and local governments when operating independent businesses within their buildings or on their property,” he said. “I feel it hurts other local businesses.”
GPLET replaces what would be property taxes with an excise tax for businesses that are located on government-owned land. Because ASU is a public university, its land qualifies for GPLET.
In a statement, Brnovich said Arizona State University is not a commercial entity, but creates a highly competitive environment for private development to use ABOR’s tax-exempt status. ASU owns a lot of property, and not just in Tempe. They also own land in downtown Phoenix, such as the Mercado building and the Grant Street Studios.
“This is improper because the State has not (and could not) give ABOR a generalized authority to grant tax exemptions to private businesses,” Brnovich said in the lawsuit. “The Gift Clause of the Arizona Constitution bars just the sort of gratuitous payments of public monies to private businesses that ABOR is doing here.”
But Jay Thorne, the assistant vice president for media relations at ASU, said there is no unfair advantage for businesses being located on ASU property because they aren’t really getting a tax break.
“They will pay in lieu taxes at essentially the same rate as the property tax would be—the only difference is where that money goes afterward,” Thorne said. “It goes to the university, which the university is entitled to as the landowner. And as public university owned property—public property—it is not eligible for property taxes. Ever.”
The attorney general did not respond for comment.
Larry Lazarus, a land-use attorney for Lazarus, Silvyn & Bangs P.C., said the legislature’s funding for universities has been decreasing each year for the past few years, causing the university to look elsewhere for funding options.
“The legislature has been reducing financial participation with the university for years and each year it gets worse,” said Lazarus. “If the university cannot increase tuition and its funding allocation is also reduced by legislative actions, they have to become entrepreneurial. This is the way to do that.”
Thorne said businesses are attracted to the university because it is a public amenity. Thorne said he believes that ASU is doing the right thing by allowing businesses to use these properties because it gives businesses the opportunity to attract people and talent.
“Every business is unique and the motivations vary, but we believe the university is a good partner and we work hard to foster good relationships,” he said. “For some businesses, the attraction is ASU research and knowledge, for others it’s the talent pipeline coming out of the university, and for some it’s simply the vibrancy, energy and proximity to a large number of staff, faculty and students.”
Thorne said the university will not speculate the court decision regarding the attorney general’s lawsuit, but is confident about any decisions made by ABOR.
Lazarus said the attorney general’s lawsuit is a legitimate legal argument, but the results may have a negative impact on the state of Arizona.
“From an equity standpoint, I think it would be a shame if ASU and other universities do not have the opportunity to grow and offer educational opportunities to our community,” he said. “From a legal standpoint, it’s questionable at who’s going to win this one.”
Contact the reporters at smedwar7@asu.edu and nahuerta@asu.edu.
Update: This story was updated on April 30 at 6:50 p.m. to add a statement from Jay Thorne that elaborated on ASU’s position on the lawsuit and more details about Government Property Lease Excise Tax.
Sara Edwards was the executive editor of Downtown Devil. She is a graduate student at the Walter Cronkite School of Journalism and Mass Communication. Sara has additional bylines in Phoenix New Times, West Valley View, L.A. Downtown News and Boardwalk Times.
Sara is also the co-secretary for the Multicultural Student Journalists Coalition.
