Equity in the Hearing Room Arizona’s ‘Uniformity Clause’ Arizona State Board of Equalization Training May 25, 2016 Equity in the Hearing Room Arizona’s ‘Uniformity Clause’ May 2016

William Ryan, C.P.A. Partner Mr. Ryan graduated from Arizona State University with a Bachelor of Science in Accountancy. He has worked in the accounting field since 2006 and with Pivotal Tax Solutions LLC since February 2010. He has been involved in all of the different components of state and local tax with the firm. Mr. Ryan is a member of the Institute for Professionals in Taxation, International Association of Assessing Officers, American Institute of Certified Public Accountants, Arizona Society of Certified Public Accountants, and Co-Chair of the Advocacy Committee for the Phoenix chapter of the International Building Owners and Managers Association. 2

Uniformity Defined IAAO defines Uniformity as: The equality of the burden of taxation in the method of assessment May 2016

Equity Defined IAAO defines Equity as: 1. In assessment, the degree to which assessments bear a consistent relationship to market value. 2. In popular usage, a synonym for tax fairness May 2016

Arizona Assessor Statements Maricopa County Assessor mission statement  To efficiently and effectively administer all laws and regulations for Maricopa County property owners so that all ad valorem property is “fairly and equitably valued” (Maricopa County Assessor Website – Mission Statement for Paul Petersen) May 2016

Arizona Assessor Statements Yuma County Assessor explanation of the Board “It is not the responsibility of the Board of Equalization to determine property values. Their function is to make sure that your assessment was made “fairly and equitably” with that of the similar and surrounding properties”. (Yuma County Assessor Website – Joe Wehrle’s explanation of the Board of “Equalization”) May 2016

Arizona Constitution: Article 9, Section 1 1. Surrender of power of taxation; uniformity of taxes May 2016

Arizona Constitution: Article 9, Section 1 Section 1. The power of taxation shall never be surrendered, suspended or contracted away. Except as provided by section 18 of this article, all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax, and shall be levied and collected for public purposes only. (emphasis added) May 2016

Arizona Constitution: Article 9, Section 1 Section 1. The power of taxation shall never be surrendered, suspended or contracted away. Except as provided by section 18 of this article, all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax, and shall be levied and collected for public purposes only. (emphasis added) May 2016

Arizona Constitution: Article 9, Section 1 What is meant by “same class of property”? A.R.S. 42-12010 – clarifies this question NOT The broad legal classes 1 through 9 IT IS the established subclasses of Title 42, Article 12, PUC codes are also considered May 2016

Arizona Constitution: Article 9, Section 18 What is provided for in Section 18 of Article 9? May 2016

Arizona Constitution: Article 9, Section 18 Centrally Assessed Business Personal Property Limited increase to LPV for locally assessed properties May 2016

Court Cases Addressing Uniformity Only ad valorem taxes, real and personal property taxes, are subject to and covered by the uniformity clause. The uniformity clause does not apply to the sales and use tax, income tax, etc. See Tilton v. Board of Supervisors of Yavapai County, 55 Ariz. 503, 103 P.2d 960 (1940); City of Douglas v. Powell, 55 Ariz. 367, 101 P.2d 465 (1940). May 2016

Court Cases Addressing Uniformity Aileen H. Char Life Interest v. Maricopa County, 208 Ariz. 286, 93 P.3d 486 (2004) Greatly disproportionate valuation was a sufficient basis to support the tax court’s finding of a violation of the uniformity clause. Proper class consists of those similarly situated properties possessing common attributes based on the nature of the property or on some other real difference in its use, utility or productivity. May 2016

Court Cases Addressing Uniformity Aileen H. Char Life Interest v. Maricopa County, 208 Ariz. 286, 93 P.3d 486 (2004) Court concluded that under the uniformity clause, it is the tax paid, not the numerical values assigned to property, that must be uniform. May 2016

Court Cases Addressing Uniformity Aida Renta Trust v. Maricopa County, 221 Ariz. 603 (Ct. App. 2009) case expands on Aileen H. Char Taxpayer need not prove they actually paid disproportionate taxes if they can prove discriminatory valuation Initial values can be used to demonstrate tax discrimination The number or percentage of taxpayers affected (favorably or negatively) has no bearing May 2016

Assessor’s Duty to Equity Is the Assessor’s Office required to consider equity (uniformity) when establishing an initial current value? NO! May 2016

Assessor’s Duty to Equity Is the Assessor’s Office required to consider equity (uniformity) when an appeal has been filed? YES! Equity in valuation May 2016

Assessor’s Duty to Equity A.R.S. 42-16055(B) “In considering a petition filed under this article the assessor shall consider the valuation fixed by the assessor on other similar property that is similarly situated.” (emphasis added) May 2016

Definition – A.R.S. 42-11001 “Valuation” means the full cash value or limited property value that is determined for real or personal property, as applicable. May 2016

Assessor’s Duty to Equity A.R.S. 42-16055(B) “In considering a petition filed under this article the assessor shall consider the valuation fixed by the assessor on other similar property that is similarly situated.” (emphasis added) May 2016

Assessor’s Duty to Equity Taxes are now based solely on Limited Property Value for locally assessed real estate Full Cash Value is used to reduce the LPV, separate the size of the FCV reduction from the size of the LPV reduction May 2016

County Board of Equalization Duty to Equity Is the County Board of Equalization required to consider equity (uniformity) when presented? YES! Equity in valuation or legal classification May 2016

County Board of Equalization Duty to Equity A.R.S. 42-16107(B) “The county board shall consider the valuation or legal classification fixed by the assessor on similar property that is similarly situated.” (emphasis added) May 2016

State Board of Equalization Duty to Equity Is the State Board of Equalization required to consider equity (uniformity) when presented? YES! Equity in valuation May 2016

State Board of Equalization Duty to Equity A.R.S. 42-16162(B) “In considering any petition filed by any person, the state board shall review and consider all competent evidence relating to full cash value, including, if presented, the valuation of similar property that is similarly situated.” (emphasis added) May 2016

Now what? What is considered equitable? Is it any more difficult to consider equity over any other approach? If equity (uniformity) is so important, how do we implement it? May 2016

What is considered equitable? What is “similar property similarly situated” according to Arizona law? Must be the same legal subclass (AZ Constitution Art. 9, Sec. 1 and A.R.S. 42-12010) “Within the territorial limits of the authority levying the tax” (AZ Constitution Art. 9, Sec 1) May 2016

Same Legal Subclass A.R.S. 42-12001 through 12009 identify specific legal subclasses The property must first meet the test of legal subclass May 2016

Same Legal Subclass Mines and Mining Claims Standing Timber Gas and Electric Distribution Water, Sewer and Wastewater Pipelines Shopping Centers May 2016

Same Legal Subclass Manufacturers, Assemblers or Fabricators Communication Transmission Facilities Golf Courses RP or BP Devoted to any other Commercial Use Electric Cooperatives 2/4/2019

Territorial Limits of Authority Levying Taxes Who levies the tax? County City School District Special Districts May 2016

Territorial Limits of Authority Levying Taxes May 2016

Territorial Limits of Authority Levying Taxes Simply, the most narrow construction would be the tax area codes Tax area codes will have the same taxes levied within the territorial limits of the authority levying the tax and will cover all possible taxing authorities. May 2016

Territorial Limits of Authority Levying Taxes But what if the property is unique and there are no others like it in the tax area code? The radius for considering equity comparables should be expanded while maintaining as many overlapping taxing authorities that are the same May 2016

Territorial Limits of Authority Levying Taxes Tax Area Code 481400 City of Scottsdale Special Districts Scottsdale Unified School District May 2016

NO! Application of Equity Is considering equity more difficult than any other approach? NO! May 2016

Sale Price is to Market Comparables Assessor Valuation is to Equity Application of Equity Sale Price is to Market Comparables as Assessor Valuation is to Equity May 2016

Application of Equity Market Comparable Equity Similar Age Similar Size Similar Area Similar Property Use Review the sale price of the property Similar Age Similar Size Similar Area Similar Property Use Review valuation established by assessor 2/4/2019

Conclusion Equity is REQUIRED to be considered when presented Equity must be from the same legal subclass The best equity comparables come from the same tax area code when possible Equity is handled similar to market comparable approach May 2016

Questions? May 2016