Sometimes, it feels like there’s a tax for everything. Income taxes, sales tax, property taxes…the list goes on and on. It can get pretty frustrating as those tax bills add up, and unfortunately there’s nothing you can do to get around it.
That said, while tax evasion is illegal, tax avoidance is prudent. In other words, you can’t skip out on taxes, but you can do everything in your power to ensure you don’t pay a penny more than you’re obligated to.
For income taxes, that means working with an accountant to legally lower your tax bill. If you’re extremely wealthy, it could also mean working with a financial planner and estate attorney to shelter your assets from estate taxes. For property taxes, you have the right to initiate a property tax appeal.
How are Property Taxes Assessed in Arizona?
In Arizona, property taxes are determined by two factors: classification and valuation. Both are determined by the county assessor’s office, which assess every property in the county on an annual basis.
Arizona law provides for nine property categories, which are laid out in ARS 42-12001 through 42-12009. Classification of real property is quite technical, so it’s best to speak with an attorney if you’re questioning your property’s classification.
As for valuation, the county assessor’s office first computes the property’s full cash value (i.e. fair market value) based on information such as lot size, livable square footage, view, topography, zoning, and previous sales in the neighborhood. This is a computerized valuation based on an analysis of the information gathered, so errors are not uncommon.
Once the assessor’s office has established a property’s full cash value, they determine the assessed valuation or limited property value based on the full cash value. The assessed valuation is based on a percentage dictated by Arizona law, and it varies based on the property’s classification.
- Class one property: 18%
- Class two property: 15%
- Class three property: 10%
- Class four property: 10%
- Class five property: determined annually
- Class six property: 5%
- Class seven property: 18%, with special treatment for approved modifications
- Class eight property: 10%, with special treatment for approved modifications
- Class nine property: 1%
After the county assessor’s office determines your property’s assessed valuation, it’s time to apply local property taxes. The actual tax rate is based on a number of contributing factors, ranging from city-imposed taxes to appropriations for bond issues, community colleges, water districts, local schools and more.
Generally speaking, the average Arizonan sees a property tax rate of 8.7% to 15% of their assessed value before exemptions and rebates are applied. That may sound like a lot, but remember that’s based on the assessed valuation, not the fair market value of your property. For example, assuming an assessed valuation percentage of 10%, that means the average property tax rates are 0.87% to 1.5% of the actual full cash value.
Property Tax Timeline in Arizona
Property valuations and taxes are calculated well in advance of the tax year when they’re due. Here is what the timeline looks like in Arizona:
The county assessor reviews local market conditions 2.5 years in advance of the tax bill. For example, for 2020 property taxes, the county assessor would review the market conditions from the middle of 2017 to the middle of 2018. The assessor will then establish the property’s assessed value based on market conditions.
Notice of Value
ARS 42-15101 requires the county assessor send the Notice of Value between January 1 and March 1. Most years, the Notice of Value is mailed in February.
While the county assessor is the one to determine a property’s full cash value and assessed value, the Property Tax Bill ultimately comes from the Treasurer. You should see the Tax Bill in the mail in September. That’s a year and a half after receiving your Notice of Value, and almost 2.5 years after the assessor determined the market conditions.
When the county assessor issues the Notice of Value, the valuation is presumed to be accurate unless challenged. In other words, the government won’t take it upon themselves to check the valuation — if you fail to catch a mistake and challenge the valuation within the allotted time frame, you’re held to the tax liability regardless of its accuracy.
Property Tax Appeals Process in Arizona
Arizona law provides two ways for property owners to appeal their property taxes. You can pursue an administrative appeal to the county assessor and the State Board of Equalization, or you can take the matter to court.
When you believe the property value stated in your Notice of Value is too high or otherwise improperly valued, you may file an appeal directly with the county assessor’s office. Under ARS 42-16051, you have 60 days to file the appeal after receiving the Notice of Value.
If you are unhappy with the county assessor’s decision after your appeal, you can bring the matter before the State Board of Equalization (SBOE). The SBOE will assign a mediator and schedule a hearing where you and the assessor can present the basis for the differing valuations. Note that the timeline for filing an appeal with the SBOE is even stricter than filing with the county assessor — you must file the appeal within 25 days of the date of the assessor’s appeal decision.
Should the SBOE come to a conclusion that you disagree with, you can still take the matter to court and fight the improper valuation in Tax Court. It’ll be more difficult with the assessor and SBOE having already ruled against you, but it’s certainly possible to successfully fight your case in court after losing your administrative appeals.
Tax Court Appeals
There are a handful of situations where it may be prudent to take your property tax case to tax court. Perhaps you missed the deadline to pursue an administrative appeal, or you disagree with the final decision from the SBOE. Of course, you can always just circumvent the administrative appeals process and go directly to court.
Regardless of your reasoning, the first thing you’ll need to do is meet with an attorney. You can pursue an administrative appeal on your own, but you’ll absolutely need an experienced attorney to successfully take your case to court.
With your attorney’s assistance, you’ll file a property tax claim in tax court or small claims court. Small claims court is reserved for appeals involving owner-occupied residential properties or any property valued under $2 million. Tax court is for agricultural properties, vacant land, and commercial properties worth more than $2 million, and residential properties that are not the owner’s primary residence.
There are two potential timelines that apply for appealing property taxes in tax court. If you already pursued an administrative appeal, you need to file your claim with the Arizona Superior Court within 60 days of the most recent administrative decision. If you appeal directly to tax court without pursuing an administrative appeal, you must file your claim on or before December 15th of the year you received the Notice of Value.
Exceptions to Appeal Deadlines
The timelines for administrative appeals and court appeals are generally ironclad, so ignore them at your own peril. There are only two exceptions to the established deadlines:
- Court appeals that have already exhausted the administrative appeals process (i.e. have been ruled against by the SBOE) and relate to changes in assessments under ARS 42-15105 due to new construction, additions to, or deletion from assessment parcels or changes in property use that occur between September 30 of the previous year and October 1 of the valuation year may file a court claim within 60 days of the mailing date for the decision on the Notice of Change.
- A new property owner whose property classification or valuation was not appealed by the former owner may appeal the classification or valuation to the court (not administratively) on or before December 15th of the year the property taxes are levied.
Residential Property Tax Appeals
In Maricopa County, you can file a residential property tax appeal online. Alternatively, you can always file a residential appeal by mail using the Residential Petition for Review of Valuation. If you’re appealing property taxes for multiple properties, you can use the Multiple Parcel Appeal Form.
In your petition, you’ll need to indicate the method of valuation for your appeal. For residential cases, you have two options:
- The Market Sales Approach — based on the full cash value of at least one comparable property within the same geographic area.
- The Cost Approach — based on the costs to build your residence, including materials, labor, builder’s profit, architectural fees, construction finance costs, etc. You must also include the land value.
Commercial Property Tax Appeals
Most counties require a traditional paper petition for administrative appeals regarding commercial properties. In Maricopa County, you would need to fill out and submit a Petition for Review of Real Property Valuation. As with residential properties, there is an alternate form for petitioners with multiple properties.
Commercial property petitions may employ the market sales approach, the cost approach, or the income approach. The latter is exclusively for commercial properties (not residential), and requires a completed and notarized income and expense statement.
Call JacksonWhite at (480)467-4334 to discuss your case today.
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