March 24, 2009

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The County Assessor has mailed out valuation notices to the owners of real property setting forth the Assessor's proposed real property valuations for the 2010 tax year. The Assessor is required to value all real property in the County by December 15th of each year, and the valuation notices are required to be mailed by March 1st. The notices are usually sent out between January 15th and the end of February, and address to establish the valuation of the real property for the tax year following the year in which the notices are sent. If you were not the owner of the property on that date, then you may not receive a valuation notice. These valuations are available online at

The valuation notice assigns two values to the real property: (i) the full cash value, and (ii) the limited cash value. The full cash value is intended to be equal to the market value of the property as determined by commonly-recognized appraisal methods. The limited cash value is determined purely by a formula prescribed by statute. A separate property tax amount is calculated for each of these values by multiplying each value, first, by an assessment ratio (defined below), and second, by tax rates specific to each value type. The total property taxes levied on the real property is the sum of these two calculations.

The assessment ratio is determined by the property classification applicable to the property. The types of property classifications are defined by statute (i.e. certain types of residential property are designated as legal class 3; certain types of raw land are designated as legal class 2). An assessment ratio is assigned to each property classification as a percentage (ranging from 1% to 100%). For example, Class 3 residential is assigned an assessment ratio of 10%. Class 2 raw land is assigned an assessment ratio of 16%. The assessment ratio is then applied to each of the full cash value and limited property value respectively to arrive at the property's assessed value. It is the assessed value to which the tax rate is applied to derive the amount of tax to be assessed against the property.

The nature of the limited cash value does not lend itself to challenge by the property owner, accordingly the property tax appeal procedure will only address the full cash value assessment. When evaluating the notice of valuation, focus should be placed upon the full cash value to determine whether it accurately reflects the market value of the property. Cause for appeal arises if it is determined that the full cash value overstates the true fair market value of the property, and/or the property has been improperly classified. If the appeal is successful, the valuation and/or classification will be adjusted. It should be noted that an election to appeal the valuation involves a risk that the valuation may be increased if it is determined the property was undervalued.

Two avenues of appeal are available to the property owner; an administrative appeal and a tax court appeal. An administrative appeal is commenced by filing a petition with the County Assessor's office. If dissatisfied with the Assessor's decision the administrative appeal process may be continued by filing a petition with the Arizona Board of Equalization within twenty five (25) days from the mailing of the Assessor's decision.. A tax court appeal is commenced by filing a complaint in the Arizona Tax Court. The administrative appeal process is a more informal proceeding, involving very relaxed rules of evidence, while an action brought before the Arizona Tax Court is conducted within the confines of formal evidentiary rules and other procedural restrictions one would normally expect to encounter in a civil court proceeding in Superior Court. As in any legal proceeding, there are time limitations within which an appeal must be filed. An administrative appeal must be filed within sixty (60) days after the mailing date of the Assessor's Notice of Valuation. An appeal to the Arizona Tax Court must be filed by the earlier of sixty (60) days following the most recent administrative decision or December 15th of that same year.

Once the forum for the appeal has been chosen, the evidence to be presented in support of the property owner's challenge to the property valuation are the same. The petition shall state the owner's opinion of the full cash value of the property and information supporting that opinion. The property owner will base its challenge on one or more of the following methods of appraisal: (i) the income approach which is used in the valuation of income producing properties, (ii) the market approach which is based upon the value of comparable properties, and (iii) the cost approach which evaluates the cost to build or rebuild the property plus the land value.

This short synopsis of the valuation process is offered to provide a better understanding of how real property is taxed and the recourse available in the event you detect inaccuracies in the assessment. If the property is overvalued, it may be prudent to explore the prospect of an appeal. Depending upon the disparity in values, a property owner may realize a substantial tax savings upon a successful appeal. If you should have any questions on this topic please feel free to contact David J. Itzkowitz.