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Rule filed under Independent Business

Ban on Tax Incentives for Retail Development – Arizona

| Written by ILSR Admin | 1 Comment | Updated on Dec 9, 2008 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/rule/banning-public-subsidies-for-big-retailers/2303-2/

In July 2007, Arizona adopted the following law, which bars municipalities in the Phoenix metropolitan region from providing tax breaks or incentives to retail development. The penalty for cities that violate the law is a reduction in the revenue that they receive from the state equal to the amount of the incentive.

Arizona has ranked at or near the top of states in terms of public subsidies for big retailers. Over the last decade, cities in the Phoenix metro have provided hundreds millions of dollars to fund chain retail development projects, putting independent businesses at a significant competitive disadvantage.

This new law should stop that practice in the Phoenix metro (Maricopa and Pinal Counties). Supporters hope to eventually extend it statewide. (For more details on how the law was passed, see  “Arizona Bans Tax Breaks for Retail Development.”)

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Sec. 2. Title 42, Chapter 6, Article 1, Arizona Revised Statutes, is amended by adding section 42-6010, to read:

42-6010. Business location municipal tax incentives; prohibition; penalty; exceptions; definitions

A.A city or town that has exterior boundaries located entirely within the exterior boundary of a metropolitan statistical area having a population of more than two million persons shall not offer or provide a tax incentive to a business entity as an inducement or in exchange for locating or relocating a retail business facility in the city or town.

B. A city or town that violates this section is subject to a penalty equal to the amount of the incentive realized by the taxpayer, extended over a period of sixty months. The department of revenue shall notify the state treasurer to withhold the amount of the penalty from monies otherwise payable to the city or town as provided by section 42-5029, subsection j.

C. The city or town shall report to the department of revenue the value of any tax incentive used as an inducement or in exchange for locating or relocating a retail business facility in the city or town. For the purposes of this subsection, the value includes all negotiated amounts, in any form and whether actual, realized or contingent, over the term of the incentive agreement.

D. This section does not apply with respect to:

1. Municipal services and benefits generally afforded by ordinance to all new businesses in the city or town, having no direct affect on municipal tax levies.

2. Tax incentives that are afforded to all existing retail business facilities in the city or town.

3. Tax incentives for locating retail business facilities in an area designated as a redevelopment project pursuant to title 36, chapter 12, article 3 where the average household income is less than the average city household income as determined by the united states census bureau.

4. Incentives consisting of reimbursement for public infrastructure dedicated to and accepted and controlled upon completion of the project by the city or town, county, state or a private utility where no other political subdivision provides such utility for transportation, water, sewer, electrical, drainage, the fair market value of real property necessary for the public infrastructure and other necessary public infrastructure. This paragraph does not apply to parking lots, parking structures or parking facilities or other structures or amenities owned or controlled by a private entity.

5. Incentives that are offered for the purpose of preserving historical buildings and other structures.

6. Incentives that are offered for cleanup or other remediation activities at a brownfields site under title 49, chapter 2, article 1.1 Or the comprehensive environmental response, compensation, and liability act of 1980 (p.l. 96-510, 94 Stat. 2767; 42 United states code sections 9601 through 9657), commonly known as “superfund”.

E.To qualify as exempt from the penalty, an incentive under subsection d of this section that is offered in exchange for expenses incurred by the business entity must be in the form of a reimbursement of the expenses and may not exceed or otherwise be disproportional to the actual cost incurred.

F. This section does not apply to tax incentives that were referred to a vote of the qualified electors of the city or town before July 1, 2007 and approved by the qualified electors of the city or town.

G. For the purposes of this section:

1. “Metropolitan statistical area” means a geographical area consisting of cities, towns and other populated areas defined for federal statistical and census purposes by the united states office of management and budget with technical assistance from the united states bureau of the census.

2. “Retail business facility” means a store, warehouse or other improvement to real estate where at least one-half of the business conducted on the premises consists of retail sales of tangible personal property to the ultimate consumer, measured by either the number of employees assigned to retail sales or the square footage of the facility used for retail sales. For the purposes of this paragraph, “retail sales” does not include:

(A) sales of food and beverage for consumption on the premises of the facility.

(B) the distribution without charge of promotional products that display the company logo or trademark.

(C) sales solely to company employees.

3. “Tax incentive” means any waiver, exemption, deduction, credit, rebate, discount, deferral or other abatement or reduction of the normal municipal tax liability of an individual taxpayer that otherwise applies to similar existing taxpayers and properties in the city or town, however denominated, computed or applied, and generally understood as an inducement for the taxpayer to locate a business facility or other operation in the city or town.

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