The Corner

Economy & Business

When State Universities and Businesses Gang Up on the Taxpayers

Arizona State University junior Austin Mulshine at the ASU Palo Verde West polling station in Tempe, Ariz., November 6, 2018. (Lindsey Wasson/REUTERS)

State universities are supposed to help educate the citizens and receive tax-exempt status toward that end. But sometimes scheming business people figure out how to “partner” with such universities to take advantage of their tax exemption. Sweet for them, but it shifts their tax burden to the rest of society.

In yesterday’s Martin Center article, Sean McCarthy of the Arizona Tax Research Association explains how this has been done in his state, with Arizona State University providing the tax-exempt basis for business development.

McCarthy writes: “In Arizona, the university system has a cavalier attitude regarding the use of its tax-exempt status. In one glaring example, the state’s largest commercial office development, built in 2016 and anchored by State Farm Insurance, pays no property taxes and will not for 99 years, thanks to a tax avoidance scheme developed by Arizona State University (ASU). The 2.2 million-square-foot glass complex in Tempe is technically owned by the Arizona Board of Regents (ABOR) and resides on their land; however, the effective owner is Transwestern Investment Group, which leases it to State Farm.”

Arrangements of this kind are both unfair and possibly illegal. McCarthy explains, “The deals also give their recipients an unfair edge over competitors. The State Farm office complex will certainly provide more revenue to ASU than the school would have received had the land remained a parking lot for students. But what of State Farm’s competitors down the street who pay full property taxes, supporting the local public schools to their economic disadvantage? Beyond fairness, the state Constitution requires that taxes be general and uniform among similar classes to prevent favoritism.”

If you live in Arizona, you should be upset over this abuse of ASU’s tax-exempt status. If you live in another state, you should be alert to the possibility that something similar is happening with one or more of your state universities.

McCarthy’s conclusion is right on target: “After decades of backroom deals that encouraged graft and corruption, transparency and accountability for tax incentives have become the minimum expectation around the country. The idea that cities and counties must jump through significant legal hoops to grant incentives while universities can simply use their private foundations to do the same is a troubling development”.


George Leef — George Leef is the director of research for the John William Pope Center for Higher Education Policy.

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