Q: How are Arizona’s property taxes calculated?

A: Full Cash Value x Assessment Ratio x Secondary Tax Rates = Secondary Taxes

Limited Property Value x Assessment Ratio x Primary Tax Rates = Primary Taxes

Secondary Taxes + Primary Taxes = Total Tax Liability

Q: What is full cash value?

A: Full Cash Value is equivalent to market value unless it is otherwise prescribed by statute. Examples of properties that are valued by a statutory method are golf courses, common areas, agricultural land, and shopping centers.

Q: What is the limited property value?

A: Arizona is one of the few states with more than one value used in the calculation of a tax liability. The Arizona Legislature established the limited property value in order to avoid a tax situation similar to California’s Proposition 13. In California, properties are assessed at their sales prices, and only increase 2.5% annually until there is another sale. The Arizona legislature realized real estate values generally increase more than 2.5% annually, and wanted to be sure that assessments correlated to market value. The Legislature was concerned that an increasing property tax base offset the ever-increasing government budgets. However, in an attempt to avoid taxpayer’s “sticker shock”, the Legislature introduced the limited value concept. The idea is that even though a property’s assessment may increase 20% in a given year, the tax liability would not result in the same 20% increase.

Q: How often does the assessor revalue?

A: The assessor is required by statute to identify property owners and to revalue property annually. However, if an assessor files a plan with the Department of Revenue, then they can freeze assessments for up to three years for residential, apartments and vacant land.

Q: How much can the full cash value increase?

A: There is no limit to the amount of the increase of the full cash value. However the limited property value can increase the greater of (a) 10% over the prior year’s limited value, or (b) 25% of the difference between the current year full cash value and the prior year’s limited property value. The limited property value cannot exceed the full cash value.

Q: Maricopa County is a very large county in terms of parcels with over 1,250,000. How is the Assessor able to value so many properties?

A: The Maricopa County Assessor employs a number of different mass appraisal models to assist in creating the values. For example, apartment complexes and hotels are valued by means of an income model. A market model values vacant land and residences. Commercial property such as offices, industrial and retail complexes are valued based upon a cost model.

Q: How does the appeal process work in Arizona?

A: Each year the assessors mail notices of value to the taxpayers of record. Taxpayers may file an administrative appeal contesting the assessment within 60 days after the notices are mailed. The first level of appeal is an informal conference with the assessor. Taxpayers may appeal further to the Arizona State Board of Equalization in Maricopa and Pima counties. In “rural counties” taxpayers may appeal to the County Board of Equalization. The final level of appeal is the Arizona Tax Court.

Q: What is the usual basis for a taxpayer’s appeal?

A: In appraisal theory, there are three approaches to value. For properties that are income producing, the income approach generally is the most relevant basis for appeal. The market approach applies to vacant land and residences. The cost approach applies to new construction and special use properties such as manufacturing facilities.

Q: If a property sells, does the assessor use the sale to establish a new assessment?

A: No. The market models consider a population of sales not a single sale. The income and cost models do not factor in the actual selling price of a property.

Q: Are properties actually assessed at their market value?

A: Pursuant to Arizona’s statutes, properties should be assessed at their market value. However, in reality, they are not. As a general rule of thumb, properties tend to be assessed at approximately 80% of market value. The Department of Revenue has produced a guideline for the assessors to establish average assessments at 80% of market. The Department of Revenue’s latest study indicates commercial properties in Maricopa County on average are assessed at 82% of market.

Q: Does Arizona have more than one class of property?

A: Yes. Arizona has a property classification scheme that categorizes all property within the state into nine separate classes. Each classification has a corresponding assessment ratio. The assessment ratio for commercial property is 25%, vacant land is 16%, and single-family residences and apartments are 10%.

Q: A property tax bill uses the terms secondary and primary tax rates. What do they mean?

A: The secondary tax rate applies to the full cash value. It is mainly comprised of commitments to satisfy bond indebtedness. Examples of assessments that contribute to the secondary tax rate are special district assessments (fire, flood control, irrigation, sewer, etc.) and special bond indebtedness (overrides) usually incurred by school districts. The primary tax rate applies to the limited property value. It is the aggregate of a number of different tax rates, including the state, county, courts, sheriff’s office, school district, community college district, and the city.

Q: How much do tax rates increase annually?