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Arizona Property Tax Updates

UPDATED July 2017

Rooftop Solar Systems Cannot be Assessed by the Arizona Department of Revenue

In a unanimous published opinion at the Arizona Court of Appeals, the Court held that rooftop solar systems cannot be assessed or taxed by the Arizona Department of Revenue (“ADOR”).  Starting in 2013, ADOR reversed years of practice by unilaterally deciding that it could assess and tax rooftop solar systems owned by companies that lease and install the systems on customers’ properties.  ADOR argued that the panels were subject to assessment as equipment involved in the operation of an electric generation facility.  Taxpayers – represented by Mooney, Wright & Moore, PLLC – sued for declaratory relief in the Arizona Tax Court, arguing that ADOR did not have authority to assess the rooftop solar systems because they were not part of an electric generation facility.  Taxpayers also argued that the systems had no value for property taxation purposes pursuant to A.R.S. 42-11054(C)(2) because they were designed primarily for on-site consumption. 

Taxpayers sought a quick resolution, filing a motion for summary judgment within thirty days of filing the lawsuit.  Through various discovery delays, however, ADOR did not respond to the motion for summary judgment for over seven months.  Ultimately, ADOR responded with a cross-motion for summary judgment, arguing that ADOR had the authority to tax the solar systems and that, alternatively, A.R.S. 42-11054(C)(2) was unconstitutional and the systems should be assessed by local counties.  The Tax Court issued a declaratory judgment agreeing with Taxpayers that ADOR had no authority to assess the rooftop solar systems.  The Tax Court further ruled, however, that the rooftop systems were assessable locally by the counties and that A.R.S. 42-11054(C)(2) was unconstitutional. 

Both parties appealed.  In a complete victory for Taxpayers, the Court of Appeals (Division 1) affirmed the Tax Court’s ruling that ADOR did not have authority to assess or tax the systems.  The Court also reversed the Tax Court’s ruling that A.R.S. 42-11054(C)(2) was unconstitutional (under either the Exemptions Clause or Uniformity Clause).  The Court also reversed the ruling that the counties in Arizona should be taxing such equipment.  The also reversed the Tax Court’s denial of attorneys’ fees to Taxpayers – holding that the Tax Court abused its discretion by failing to grant Taxpayers their fees and costs as the prevailing party pursuant to A.R.S. 12-348.  Finally, the Court granted Taxpayers request for attorneys’ fees on appeal.  The opinion represents a victory for all taxpayers in curtailing an overreach by ADOR and a significant victory for the solar industry in Arizona.  It can be found at SolarCity Corp. v. Arizona Dept. of Rev., No. 1 CA-TX 15-0008 (May 18, 2017) (2017 WL 2180393).

 
Mooney, Wright & Moore, PLLC
American Property Tax Counsel (APTC)

Arizona Property Tax Update Archive

UPDATED MARCH 2017

Arizona Property Tax Payments for 2016 Tax Year

The second-half payment of Arizona’s real property taxes for the 2016 tax year are due and should be paid before 5 p.m. on Monday, May 1, 2017, to be timely.  Delinquent tax payments may result in severe consequences for maintaining pending appeals and settlements, as well as the accrual of significant interest penalties and the eventual loss of the property if the taxes are not paid.  If you have an Arizona appeal or settlement pending, please contact one of the attorneys at APTC member firm Mooney, Wright & Moore, PLLC, if you are concerned that you will not be able to timely pay the second installment of your 2016 property taxes on or before May 1, 2017.

Also note, under Arizona law, a postmark on your tax payment by the May 1 delinquency date is considered “receipt” by the treasurer, but because timing questions sometimes come up, we recommend using certified mail if you use this option.

Mooney, Wright & Moore, PLLC
American Property Tax Counsel (APTC)

 

UPDATED December 2016

Tax Year 2018 Notices Are Coming Soon

The Maricopa County Assessor’s office will be issuing its initial 2018 valuation notices in February 2017.  If you wish to file a 2018 administrative appeal on your Maricopa County real property, you must file a petition for review within sixty days from the mailing date of the notice.  Please note that the filing deadlines in other Arizona counties are not the same as Maricopa.  Therefore, if you have properties in other counties please check your valuation notices to determine that county’s filing deadline.

If you do not file an administrative appeal, you have until December 15, 2017, to file a 2018 appeal directly with the Arizona tax court.  Please contact us if you have any questions or would like to appeal the valuation or classification of your property.

Mooney, Wright & Moore, PLLC
American Property Tax Counsel (APTC)

 

UPDATED SEPTEMBER 2015

September Notices

The Assessor will soon be issuing Supplemental Notices, also referred to as September Notices of Change, for the 2016 tax year. These Notices are typically issued by the Assessor in cases where there has been new construction, additions to, deletions from, splits or consolidation of parcels between September 30 of the preceding year and October 1 of the valuation year. If you receive a Supplemental Notice from the Assessor and you wish to challenge the new valuation or classification, you have twenty-five days from the date of the Notice to file an administrative appeal with the State or County Board of Equalization. If you have any questions about this process, please call one of our attorneys.

Mooney, Wright & Moore, PLLC
American Property Tax Counsel (APTC)

First-half 2015 Property Tax Payments Due No Later Than Monday, Nov. 2, 2015

Please remember that the first-half of your 2015 property taxes must be paid by Monday, November 2, 2015, to be timely. Delinquent tax payments may result in severe consequences for maintaining pending appeals and settlements, as well as the accrual of significant interest penalties and the eventual loss of the property if the taxes are not paid. If you have an appeal or settlement pending, please contact us if you are concerned that you will not be able to timely pay the first installment of your 2015 property taxes on or before November 2, 2015. Also note, under Arizona law, a postmark on your tax payment by the delinquency date is considered “receipt” by the treasurer, but because questions sometimes come up, we recommend using certified mail if you use this option.

Mooney, Wright & Moore, PLLC
American Property Tax Counsel (APTC)

 

UPDATED SEPTEMBER 2014

Arizona Tax Court Reviews Valuation of Grazing Land

Following a trial held in March of this year, the Arizona Tax Court issued its ruling regarding the full cash value of grazing land in Yavapai County, Arizona. The case was brought by several cattle ranchers (“Ranchers”) who claimed the County Assessor had illegally increased the value of their property by more than 300% from $7.56 per acre to $25 per acre.

Under Arizona law, the value of grazing land is determined pursuant to a statutory formula based on the income approach to value. At issue was the average annual net cash rental value of grazing leases. The Tax Court ruled in favor of the Ranchers.

The Assessor testified at trial that her office had relied on a statistical survey performed by the Arizona Department of Revenue (“ADOR”), which ADOR later told her could not be used to value individual properties. Specifically, the Court found: “Based on the evidence presented at trial, the Court finds the ADOR study lacks foundation and, consistent with [ADOR]’s memorandum to all assessors, it should not have been used to establish the full cash values of grazing land in Yavapai County for tax years 2012 or 2013.” The Tax Court agreed that the Assessor did not follow the law, and even ruled that: “[T]he manner in which the Assessor’s Office utilized the ADOR report was an abuse of discretion.”

Based on the evidence presented by the Ranchers’ expert witness at trial, the Tax Court found that the Assessor’s $25 per acre full cash value for natural grazing land was excessive and had to be reduced to $9.19 per acre for the 2012 tax year and $10.10 per acre for the 2013 tax year.

Mooney, Wright & Moore, PLLC
American Property Tax Counsel (APTC)

 

UPDATED SEPTEMBER 2012

Arizona's Proposition 117 Would Impose a 5% Cap on Increases in Real Property Value

This November, Arizona voters have an opportunity to pass a state constitutional amendment that will make fundamental changes in how real property is valued in Arizona. The ballot measure is called Proposition 117 and it would limit the annual increase in real property values to 5% of the prior year's value.

Arizona currently uses a "two track" system for calculating property tax. "Secondary Taxes" are based on a percentage of the property's full cash value (generally an estimate of market value) while "primary taxes" are based on a percentage of the property's "limited value." The limited value may not be greater than the full cash value. The limited value is set to the prior year's limited value plus 10% or one quarter of the difference between the prior year's limited value and the current year's full cash value, whichever is greater. When property values are stable or falling, the limited value and the full cash value are often the same, but when property values are rapidly increasing, the full cash value may be significantly higher than the limited value.

Proposition 117, if passed, would eliminate Arizona's two-track system. Real property values would be set to 5% greater than the prior year's value or the full cash value, whichever is less. The cap would not apply to new properties (those that are split, combined or redrawn), properties with changes in use, or properties with new construction.

It is important to note that prop 117 is not a tax cap, but merely a value cap. Taxing authorities would retain the right to raise tax rates to meet real or perceived budgetary needs. Although its supporters claim it will stabilize taxes, such a result depends on the willingness of taxing authorities to keep tax rates stable.

If passed, prop 117 would take effect for tax year 2015-- taxpayers would see a change in their spring 2014 notices of value.

Paul D. Bancroft
Bancroft Law PC
American Property Tax Counsel (APTC)

 

Updated December 2011

Arizona Taxpayers Will Soon Get Their 2013 Notices of Value

Arizona counties will be mailing out their 2013 tax year notices of value for property tax purposes in February 2012. In many cases, however, because of the methodology county assessors use to value property, property tax values will not fully reflect the continued market decline in value.

Arizona law provides two avenues for taxpayers to appeal their values. A taxpayer who elects to challenge their property's valuation through the administrative process has 60 days from the mailing of the notice of value in February 2012 to file with the county assessor. Each county assessor elects when to mail out notices, so taxpayers with properties in multiple counties should be alert. Taxpayers unaware of the deadlines can easily miss an opportunity to challenge their property's valuation.

A taxpayer who misses the deadline for an administrative appeal may file an appeal in tax court by December 15, 2012. Moreover, taxpayers who purchase a property after December 15, 2011 but before December 15, 2012 may file an appeal in tax court challenging the 2012 tax year value.

Because failure to file a timely appeal bars any further challenge to the property's valuation, it is important for property owners to consult with local counsel to ensure that their properties are being valued properly and equitably.

 

Updated September 2011

It’s Still Not Too Late for Some Arizona Taxpayers to Challenge Their 2011 and 2012 Valuations

The 2012 tax year administrative appeals process in Arizona is winding to a close. However, some taxpayers still have an opportunity to challenge their 2012 valuations. For those who have filed an administrative appeal and are dissatisfied with the outcome, a tax court appeal may be commenced within 60 days of the date of mailing of the most recent administrative decision. A property owner who did not file an administrative appeal may still file an appeal directly to the Arizona Tax Court on or before December 15th.

Also, some taxpayers who recently purchased a property may still appeal their 2011 valuations. Arizona law allows the new owner of a property whose valuation or classification was not appealed by the former owner to appeal directly to the Tax Court on or before December 15th of the year the taxes are levied. Thus, if a new owner purchased property after December 15, 2010, and the property's valuation was not previously appealed during the 2011 valuation year (i.e., during calendar year 2010), the new owner may still file an appeal to the Tax Court by December 15, 2011.

 

Updated June 2011

Assessment Ratio for Commercial Property is Reduced

Property in Arizona is classified according to its use. Different assessment ratios apply to different classes of property. There are nine classes of property and five different assessment ratios ranging from 1% to 20% depending on the class of property.

Arizona is uncompetitive as far as the burden on commercial property taxpayers, ranking 41st nationally and 8th in the nine-state Western region. As recently as 2005, commercial property was assessed at 25% of full cash value. Over the past five years, the legislature reduced the assessment ratio from 25% to 20%. In the recent legislative session, the assessment ratio was phased down from 20% to 18% over four years beginning in tax year 2013. The legislature also agreed to reduce the assessment ratio from 16% to 15% on agricultural property and vacant land beginning in tax year 2016.

Business Personal Property Tax Reductions

Current law provides that business and agricultural personal property receive accelerated depreciation over and above the regular depreciation allowance. The change in the law would increase the amount of additional depreciation by 5% relative to what is currently allowed.

Increase in the Business Personal Property Tax Exemption

Under current law, personal property is exempt from taxation up to a maximum amount of $50,000 in full cash value per taxpayer. This amount is automatically adjusted for inflation each year using the GDP Price Deflator and is currently $67,268. Beginning in tax year 2012, the GDP Price Deflator will be replaced with the Employment Cost Index for purposes of calculating the inflation-adjusted exemption amount each year. It is estimated that the use of the new inflation factor may increase the personal property exemption amount for tax year 2013 by about $600.

 

Updated March 2011

New property owner must follow administrative appeal route started by previous owner.

The owner of the property did not appeal the value for 2007. The owner of the property did appeal the value for 2008. A new owner purchased the property before the SBOE hearing. After losing in the SBOE, the new owner filed suit appealing both 2007 and 2008. The suit was filed after the expiration of the time for appealing a decision of the SBOE, but before the December 15th deadline for the filing of a suit in the event no administrative appeal was filed. The Court dismissed the 2008 claim reasoning that once the administrative appeal was filed for 2008, the new owner stepped into the shoes of the previous owner and had to follow that administrative process, including filing the complaint within the time the previous owner would have had. Jewel Investment v. Maricopa County, TX2007-000633.

 

Updated December 2010

The New 2012 Tax Appeal Process

The 2012 tax year appeals process is underway in Arizona. County assessors must mail 2012 valuation notices before March 1. A property owner who wishes to file an administrative appeal challenging the property’s valuation must file a petition with the county assessor within sixty days after the date the assessor mailed the notice of valuation. The appeal deadline this year in Pima County is April 5; in Maricopa County the deadline is April 26. The petition must provide substantial information in support of reducing the value. Taxpayers dissatisfied with the administrative appeals process may commence an appeal in Tax Court within 60 days of the date of the mailing of the most recent administrative decision.  A property owner who missed the administrative appeal deadline, however, may still file an appeal directly to the Arizona Tax Court on or before December 15th.

 

Updated September 2010

New Owners Beware: Protect the Agricultural Status of Your Property

In many states, property designated for agricultural use is appraised at a lower value by statute than non-agricultural property. To obtain agricultural status, however, the law typically requires a taxpayer to follow certain procedural requirements and to satisfy qualifications regarding it use. For new purchasers of property, especially those from outside the jurisdiction, it is imperative to be acquainted with laws governing agricultural status. In Arizona, a new owner must take steps to protect the property's agricultural status. For instance, a new owner of a property must file an application requesting that the property be designated for agricultural use with the county assessor within 60 days of purchasing the property. Failure to file an application will cause the assessor to remove agricultural classification. All is not lost, however, if a new owner misses the 60-day window. A property may be appealed under normal administrative proceedings for that tax year or through a lawsuit in Tax Court, but only if such appeals are timely filed. Thus, being proactive and working with local counsel to ensure that a newly purchased property maintains its agricultural status can translate into significant tax savings.

 

Updated September 2009

Arizona Court of Appeals Holds That Taxpayer May Not Establish Obsolescence Based on Factors within Its Control

Taxpayer is a telecommunications company that operates a network of fiber optic telecommunication lines throughout North America. As the economy expanded, Taxpayer rapidly expanded its network capacity in anticipation of perceived increases in future demand. As it turned out, however, taxpayer overbuilt its network and the value of its property was impaired. Taxpayer challenged the Arizona Department of Revenue's ("ADOR") valuation of its property based on the premise that the ADOR had failed to adequately account for functional and economic obsolescence. The Court of Appeals held that a taxpayer cannot establish obsolescence because of factors within its control. The court observed that Taxpayer's business decisions and overbuilding were within its control and thus do not support its claim of economic obsolescence. As the tax court explained, "[m]ere erroneous business judgment does not create obsolescence." Level 3 Communications, LLC v. Arizona Dept. of Revenue, 2009 WL 2195048 (Ariz.App. 2009).

 

Updated June 2009

Arizona Court of Appeals Holds That Improvements and Personal Property located on Indian Reservation Are Subject to Taxation

At issue in Calpine Construction Finance Co. v. Ariz. Dept. of Rev., 554 Ariz. Adv. Rep. 3 (Ariz. App. 2009), was whether the taxpayer or the Fort Mohave Indian Tribe ("Tribe") owned the improvements and personal property located on the Indian reservation. Calpine sought a refund of property taxes assessed on the electric power generating plant and personal property it operated on the lease of trust land from the Fort Mohave Indian Tribe. Calpine argued that the property belonged to the tribe and thus was immune from taxation. The general rule under Arizona law is that a permanent structure placed upon and attached to the realty by a tenant is real property belonging to the lessor. However, the parties can abrogate that rule by expressly agreeing to treat the improvements as belonging to the lessee. Based on the language of the leased agreement, the Arizona court of Appeals ruled that Calpine owned the improvements and personal property. The lease provided that all buildings and improvements constructed on any part of the lease land was the property of taxpayer. The lease also did not require any rental obligations for the improvements, and it allowed Calpine to receive any distributions in a condemnation proceeding.

 

Updated December 2008

New property owner must follow administrative appeal route started by previous owner.

The owner of the property did not appeal the value for 2007. The owner of the property did appeal the value for 2008. A new owner purchased the property before the SBOE hearing. After losing in the SBOE, the new owner filed suit appealing both 2007 and 2008. The suit was filed after the expiration of the time for appealing a decision of the SBOE, but before the December 15th deadline for the filing of a suit in the event no administrative appeal was filed. The Court dismissed the 2008 claim reasoning that once the administrative appeal was filed for 2008, the new owner stepped into the shoes of the previous owner and had to follow that administrative process, including filing the complaint within the time the previous owner would have had. Jewel Investment v. Maricopa County, TX2007-000633.

 

Updated June 2008

Arizona Court of Appeals Upholds Non-Profit Charitable Organization's Exemption from Real Property Taxes.

In Arizona, the property of musical, dramatic, dance, and community arts groups, botanical gardens, museums, and zoos, qualified as non-profit charitable organizations, is exempt from real property taxes if the property is "used for those purposes and not used or held for profit." In Tucson Botanical Gardens, Inc. v. Pima County, ___ P.3d ___, 2008 WL 2109843, the Arizona Court of Appeals addressed the issue of whether a qualified non-profit charitable organization, was entitled to this exemption on the portion of its property it used to operate a gift shop, exhibit art for sale, and rent to third parties for various activities, such as weddings, private meetings, or parties. The court held the exemption applied to taxpayer's property. The court reasoned that as long as the taxpayer's principal or primary use of the property is for the designated exempt purpose, the taxpayer is entitled to the exemption notwithstanding its occasional or incidental use of its property for other purposes.

 

Updated March 2008

External obsolescence must be shown to affect the subject property, not just the industry as a whole.

Eurofresh, Inc. is the leading year-round producer and seller of greenhouse tomatoes in the United States. Eurofresh contested their property value and succeeded in convincing the Arizona Tax Court that external obsolescence within the greenhouse industry as a whole impaired the value of Eurofresh's greenhouse. On appeal, the Arizona Court of Appeals held that evidence was needed to show how industry obsolescence factors actually affected the value of the subject property. A party must present evidence of the cause of the claimed obsolescence, the quantity of such obsolescence and that the cause actually affects the subject property. Because Eurofresh produced no such evidence at trial, the Court reversed the judgment and ordered that the Tax Court enter judgment for the county. Eurofresh, Inc. v. Graham County, 1-CA-TX 06-0002.

 

Updated December 2007

A property owner cannot contest its entitlement to an exemption in court without payment of the tax.

Luz Social Services, Inc. applied for property tax exemption. The Assessor denied the application. Luz then filed a notice of claim with the State Board of Equalization asserting the Assessor had erred. The Board declined to review the Assessor's decision. Luz then appealed that denial to the Court. In Luz Social Services, Inc. v. Arizona State Board, TX2007-000261, the Court held that the failure to pay the disputed taxes before an appeal was taken of the Board's actions barred Luz from contesting the Board's decision in the Court. While the Assessor may have indeed been in error in denying the exemption, and the Board may also have been in error for refusing to review the Assessor's decision, state law still required Luz to pay the taxes to contest the exemption determination.

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