arizona property tax overview

Frazer Ryan Goldberg & Arnold, LLP

ARIZONA PROPERTY TAX OVERVIEW

Presented by Michael G. Galloway

Partner


www.arizonatax.com

Q. What is the difference between Osama Bin Laden and a lawyer?

A. Bin Laden has some good qualities.

Top 10 Reasons Why Lawyers Should Replace Lab Rats

1. There is an endless supply.2. Lab assistants don’t get attached to them.3. It’s more fun to shave and stick needles in lawyers.

4. There are some things rats just won’t do.

5. It’s fun to dispose of them when you’re through.

6. It’s not “inhumane” treatment, when it comes to lawyers

7. No one cares when a lawyer squeals.

8. We’ve seen what happens when they are allowed to breed in the wild.

9. Lawyers belong in cages.

10. Animal rights activists don’t care if you torture lawyers.


PropertySubject to Tax


Generally, All Arizona Property is Subject to Taxation Unless an Exemption is Constitutionally Allowed or Required.


Constitutional Exemptions Under Art. 9, §2

• Government Property• Public Charities• Public Debts• Household Goods• Business Personal Property• Inventory and Work in Progress• Widows and Veterans• Other Exemptions


“Statutory” Exemptions

• Government Property. A.R.S. §42-11102.• Government bonded indebtedness. A.R.S.

§42-11103.• Education and library property. A.R.S. §42-

11104.• Health care property. A.R.S. §42-11105.• Apartments for the elderly or handicapped

residents. A.R.S. §42-11106.• Institutions for the relief of the indigent or

afflicted. A.R.S. §42-1107.


• Grounds and buildings owned by agricultural societies. A.R.S. §42-11108.

• Religious property. A.R.S. §42-11108.

• Cemeteries. A.R.S. §42-11110.

• Observatories. A.R.S. §42-11112.


• Land and buildings owned by societies to prevent cruelty to animals and for the shelter, care and control of animals. A.R.S. §42-11113

• Property held for conveyance as parkland. A.R.S. §42-1114

• Property held to preserve or protect scientific resources. A.R.S. §42-1115

• Property of arts & science organizations. A.R.S. §42-11116.


• Property of volunteer fire departments. A.R.S. §42-11117.

• Social welfare and quasi-governmental service property. A.R.S. §42-11118.

• Property of volunteer roadway cleanup and beautification organizations. A.R.S. §42-11119.

• Property of veteran’s organizations. A.R.S. §42-11120.


• Community service organizations. A.R.S. §42-11116.

• Volunteer fire departments. A.R.S. §42-11116.

• Social welfare and quasi-governmental service organizations. A.R.S. §42-11118.

• Volunteer roadway cleanup and beautification organizations. A.R.S. §42-11119.

• Veteran’s organizations. A.R.S. §42-11120.

• Community service organizations. A.R.S. §42-11121.


• Trading commodities. A.R.S. §42-11122.

• Animal and poultry feed. A.R.S. §42-11123.

• Possessory interests for educational or charitable activities. A.R.S. §42-11124.

• Inventory, materials and products. A.R.S. §42-11125.


• Production livestock and animals. A.R.S. §42-11126.

• Commercial and agricultural personal property up to $50,000 of each assessment account. A.R.S. §42-11127.

• Personal property in transit. A.R.S. §42-11128.

• Property of fraternal societies. A.R.S. §42-11129.


Qualifying for Exemptions

• Affidavits

• Establish non-profit status


Intangible Property is Not Taxed


The Arizona Constitution allows property to be divided into classes for property tax purposes and each class may be treated differently. Ariz. Const. Art. IX, §1.


• However, property within a class must be treated the same. Id.

– Physical characteristics

– legal characteristics

– use

– industry


Class One– Producing mines and mining claims, related personal

property and improvements, mills and smelters and standing timber. It also includes real and personal property of gas and electric utility companies, of airport fuel and delivery companies, producing oil, gas and geothermal resource interests, water, sewer and wastewater utility companies, pipeline companies, shopping centers, golf courses, manufacturers, assemblers or fabricators, telephone or communications transmission companies and any other commercial or industrial use, other than property that is specifically included in another class.

– 25%


Class Two– Real property and improvements and personal

property used for agricultural purposes, real property and improvements owned and controlled by a nonprofit that is exempt under 501(c)(3), (4), (7), (10) or (14) and all other real property, not included in Classes One, Three, Four, Six, Seven or Eight.

– Real property - 16%

– Personal property - 16% that exceeds the $50,000 plus exemption amount


Class Three

– Real and personal residential - 10%


Class Four

– Real and personal property used solely for the lease or rental of residential property

– 10%


Class Five

– Property of railroad companies, private car companies and flight property

– The assessment ratio is determined annually by calculating specific ratios based on value of other property.


Class Six– Noncommercial historic property, property located

within a foreign trade zone

– Property in a military reuse zone

– Real and personal property located in an enterprise zone

– Property comprising a qualified environmental technology plant

– Property used to remediate the environment mandated by governmental authority

– 5%


Class Seven

– Real and personal property that is commercial historic property

– 25% except for modifications to restore the property which is assessed at 1% of value for up to ten years


Class Eight

– Noncommercial historic property that is leased or rented as a residence

– The assessment ratio is 10%, except for modifications made to restore the property, which are assessed at 1% of value for up to 10 years


Class Nine

– Possessory interests

– The assessment ratio for Class Nine property is 1%


Classification Issues

• Current Use

• Intended Use

• Agricultural Land

• Residential Rentals

• Historic Property

• Subclasses


Property Valuation

• Valuation Methods

– “Full cash value” is synonymous with “fair market value” unless an alternative statutory valuation method is prescribed. §42-11001.

– “[S]tandard appraisal methods and techniques” are to be used. §42-11054.

• Cost

• Income

• Market


• Appraisal Techniques

– Cost approach

– Sales Comparison or Market Approach

– Income Approach

– Statutorily Prescribed Valuation Methods

• Electric and Gas Distribution Utilities

• Pipelines

• Shopping Centers


• Current or Intended Use of Property

• Discrimination Prohibited

• The Valuation Role of County Assessors

• The Valuation Role of the Arizona Department of Revenue

• The Supervisory Role of the Arizona Department of Revenue


Levy and Calculation of Tax

• Definitions

– Full Cash Value

– Limited Property Value

– Secondary Property Taxes

– Primary Property Taxes

– Current Usage

– Valuation Date

– Valuation Year


• Calculation of the Limited Property Value

– Existing Property, A.R.S. §42-13301

• 10% of that prior year’s value, or

• 25% of the difference between the current full cash value and the prior year’s limited value


– New or Omitted Property.

• Rule “B”

• Calculation of Tax


Administrative Appeals of Locally-Valued Real Property Valuation and Classification


Parties to an Administrative Appeal

• Owner

• Others With An Interest in the Property

• County Assessor

• Department of Revenue


Administratively Appealable Issues

• Valuation and Classification

• Discrimination


Levels of Administrative Appeals

• Petition to County Assessor

– Multiple Appeals

• same economic unit according to Department of Revenue guidelines or if they are owned by the same owner, they have the same use, are appealed on the same basis and are located in the same geographic area


– Petitions Based on Income Approach to Value

• An Income and Expense Statement form (DOR 82300) must be filed with the petition

• Must submit a sworn affidavit, under penalty of perjury, that the information submitted is true and correct to the best of his knowledge

– Exhaustion of Remedies


– Petition Strategies

• Income Approach

• Comparable Assessments

• Isolation of Land and Improvement Valuation

• Mixed Classification

• Current Usage

• Assessor’s Errors


– Hearing

– Representation

– Assessor’s Power to Increase Value

– Assessor’s Decision


• Appeals to State Board of Equalization

– Description

– Who May Appeal

– Time for Appeal

– Decision

– Further Appeal


Other Administrative Appeals Procedures

• Errors

• New Construction


Property Tax Appeals to Court


• During Valuation Year

• New Construction, Changes to Assessment Parcels and Changes in Use

• Contents of the Appeal– File a Notice of Appeal

– Contains a statement of the reasons why the valuation or classification is excessive or erroneous

– The appeal should identify the property


• Parties to the Appeal. A.R.S. §42-16208

• Service on Defendants

• Timely Payment of Taxes

• Hearing

• Findings and Judgment


Errors

Definition• An “error” means any mistake in assessing or

collecting property taxes resulting in:– an imposition of an incorrect, erroneous or illegal tax rate

that resulted in assessing or collecting excessive taxes

– an incorrect designation or description of the use of property or its classification

– applying the incorrect assessment ratio percentages

– misreporting or failing to report property if a statutory duty exists to report the property


– A valuation that is based on an error that is exclusively factual in nature or due to a specific legal restriction that affects the subject property and that is objectively verifiable without the exercise of discretion, opinion or judgment, demonstrated by clear and convincing evidence, such:

• a mistake in the description of the size, use or ownership of land, improvements or personal property

• clerical or typographical errors in reporting or entering data that was used directly to establish valuation


• A failure to timely capture on the tax roll a change in value caused by new construction, destruction, demolition or splitting or consolidating interests in real property existing on the valuation date

• the existence or non-existence of the property on the valuation date

• any other objectively verifiable error that does not require the exercise of discretion, opinion or judgment


• Notice of Error - Tax Authority detects the error. A.R.S. §42-16252

• Taxpayer Detected Error

– Error in taxpayer’s favor. A.R.S. §42-16253

– Notice of Claim. A.R.S. §42-16254

• Timing

R ea l P roperty T ax V a luation A ppea ls

N otice to Taxpayer B efore M arch 1 o f p rio r year

Petition to Assessor File w ith in 60 days o f m ailing o f no tice

D ecis ion by A ugust 15

C onference requ ired if requested by thetaxpayer

Taxpayers in Sm all C ountiesAppeal to C ounty Board of

Equalization File w ith in 25 days o f m ailing o f assessor

decis ion

D ecis ion by O ctober 15

Taxpayers in Large C ountiesAppeal to C ounty Board of


or county board decis ion

D ecis ion by O ctober 15 fo r p ropertyva lued by the C ounty; N ovem ber 15 fo rproperty va lued by the D epartm ent

Appeal to C ourt From adm in istra tive decis ion w ith in 60 days o f m ailing

date o f decis ion , o r

B y D ecem ber 15 where no adm in istra tive appea l isfiled

Further Appellate R eview


Personal Property

• Personal property taxes are liens against the property.

• The taxpayer has an obligation to report its property to the assessing authority


• Failure to report

• Construction work in progress

• Clean rooms

P ersona l P roperty T axV a luation A ppea ls

NO TICE TO TAX PAYER B efore the 1st M onday o f the

m onth

RULING BY ASSESSO R W ith in 30 days o f filing

PETITIO N TO ASSESSO R W ith in 30 days a fte r no tice is

de livered

APPEAL TO STATE BO ARD O FEQ UALIZATIO N

W ith in 30 days a fte r the date o f theassessor's no tice o f re fusa l

APPEAL TO CO URT W ith in 60 days o f m ailing o f

decis ion

2000

NO TICE TO TAX PAYER O n or before June 30

RULING BY ASSESSO R W ith in 20 days o f filing (like ly by

A ugust 9 )

PETITIO N TO ASSESSO R W ith in 20 days a fte r no tice is

de livered (like ly by Ju ly 20)

APPEAL TO CO UNTY O R STATEBO ARD O F EQ UALIZATIO N

W ith in 20 days o f the assessor'snotice o f re fusa l (like ly by A ugust 30)

APPEAL TO CO URT W ith in 60 days o f m ailing o f

decis ion

2001

R ea l P roperty T ax V a luation A ppea ls

N otice to Taxpayer B efore M arch 1 o f p rio r year

Petition to Assessor File w ith in 60 days o f m ailing o f no tice

D ecis ion by A ugust 15

C onference requ ired if requested by thetaxpayer

Taxpayers in Sm all C ountiesAppeal to C ounty Board of


decis ion

D ecis ion by O ctober 15

Taxpayers in Large C ountiesAppeal to C ounty Board of


or county board decis ion

D ecis ion by O ctober 15 fo r p ropertyva lued by the C ounty; N ovem ber 15 fo rproperty va lued by the D epartm ent

Appeal to C ourt From adm in istra tive decis ion w ith in 60 days o f m ailing

date o f decis ion , o r

B y D ecem ber 15 where no adm in istra tive appea l isfiled

Further Appellate R eview


ARIZONA PROPERTY TAX OVERVIEW

Michael G. Galloway