Property Taxes in General

 
Background Concepts
  • Arizona’s methodology for taxation of real property divides each individual parcel of real property into 2 separate categories.
  • First, limited property value (“LPV”) is based on evaluation established initially by the legislature in 1980 at the then prevailing FCV and subsequently increased at the greater of (a) 10% per year or (b) 25% of the difference between the immediately prior year’s LPV and the current year’s FCV, but never to exceed the property’s FCV. LPV is utilized for determining the Primary Tax Rate (“PTR”). In other words, LPV is restricted in how much it may increase in any one given year. Common examples of PTRs include those related to Maricopa County, municipalities within Maricopa County, and school districts other than those related to overrides which are discussed below.
  • Second, Full Cash Value (“FCV”) is a reflection of a property’s market value which is used to determine the Secondary Tax Rate (“STR”). Examples of STRs relate to those associated with school bond overrides, the Maricopa County Flood Control District, various improvement districts and the like. FCV is not restricted by law in the amount it may increase in any one year. Generally speaking, FCV is an amount which lags behind the actual fair market value by as much as 15%.
  • Assessment ratio (“AR”) is determined by property class based on use. The following is an explanation of the current AR classes:

Secondary Taxes – 101,853 x 10% divided by 100 x $4.567 (Total with special district) = $465.16
Primary Taxes – 100,310 x 10% divided by 100 x $8.3551 = $838.10
Total Taxes - $465.16 + 838.10 = $1,303.26
(rounded up to the nearest even amount to be evenly divided
by two so that the first and second half tax bills will be equal)

How to forecast anticipated tax liability for your property

Step No. 1. Determine the precise location of the subject property by examining the Maricopa County Assessor’s records either at the Maricopa County Administration Building, 1st Floor, 301 West Jefferson, Phoenix, Arizona, 85003 or by going to the Assessor’s website . The purpose of Step No. 1 is to identify the book, map and parcel numbers for the subject property which translate in to tax parcel identification numbers. Please note the subject property may have more than one tax parcel identification number.

Step No. 2. Utilizing the records of the Maricopa County Assessor determine the location of comparable properties to the subject property including an understanding of the various book, map and parcel numbers and their accompanying tax parcel identification numbers. Please note that an effort should be made to find comparables within the same tax parcel identification number “district area code” and assessment ratio class and that the comparable properties may have more than one tax parcel identification number.

Step No. 3. Visit the Maricopa County Treasurer’s office located on the ground floor of the Maricopa County Administration Building, 301 West Jefferson, Phoenix, Arizona, 85003, or examine the Treasurer’s website , and the taxrate document for the purpose of determining the Primary Tax Rate (“PTR”) (which is based on the Limited Property Value (“LPV”)) and the Secondary Tax Rate (“STR”) which is based on the Full Cash Value (“FCV”).

 
The Treasurer’s office records will be helpful for determining the actual taxes paid on a historical basis for the subject property and all comparable properties. Additionally, the Treasurer’s office will be of some assistance in efforts to forecast future tax liability.

Step No. 4. You should now make an effort to determine the FCV of the subject property. Evaluations of property are generally based on:

  • The market approach which is the FCV for at least one comparable property within the same geographical area as the subject property or a sale of the subject property.
  • The cost approach, a compilation of all costs (architectural fees, construction finance costs, builders profit, etc.) to build or rebuild improvements plus the value of land. The Assessor's office utilizes a formulaic approach which is loosely based on the Marshall & Swift Cost Guide.
  • The income approach which analyzes the subject property's income generation ability at an appropriate industry capitalization rate.

Please note the Assessor will initially consider contractual rent restrictions when utilizing the income approach. Rather, the Assessor will analyze comparable market income and expenses for similarly situated properties which are comparable.

Step No. 5. Visit the Maricopa County Assessor's office in person for the purpose of determining that your projected estimate of future tax liability is conservative for pro forma purposes.

Non-Profit Apartment Developers Exemption from Real Property Taxes
In order to be eligible for an exemption from real property taxes an apartment owner must be wholly owned, on a direct or indirect basis, by a non-profit organization which has received a determination letter from the Internal Revenue Code with respect to the requirements of Internal Revenue Code Section 501(c)(3). Additionally, the Maricopa County Assessor's office will only provide partial exemptions to the extent that the property is actually occupied by tenants who fit one of the following 3 criteria:
  1. Documentation exists that the individual or family occupying an apartment unit has an income at or below 50% of the median income limit per HUD;
  2. Documentation exists that the person or family occupying the apartment unit is considered elderly (i.e., 62 years of age or older); or
  3. Documentation exists that the person or family occupying the apartment unit is a recipient of SSD payments.

Unless one of the above 3 criteria are met the individual apartment unit and applicable percentage of the apartment project will be taxed in the same manner as if the project were owned by a for-profit business. As an example if a 100-unit apartment project had 25 units which met 1 of the 3 criteria set forth above then the Assessor would give the project a 25% exemption from taxation.

Please note that if a non-profit organizations, which is the general partner in limited partnership which utilized private activity bonds and the 4% low income housing tax credit to finance the project will be treated as for-profit developers; despite the fact that 100% of the units may be available for persons or families meeting each of the above-reference criteria.