1. 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

2. 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 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

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

4. 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

5. 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

6. 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

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

8. 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

9. 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

10. Arizona Constitution: Article 9, Section 1
What is meant by “same class of property”?
A.R.S – 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

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

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

13. 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

14. 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

15. 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

16. 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

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

18. 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

19. Assessor’s Duty to Equity
A.R.S (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

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

21. Assessor’s Duty to Equity
A.R.S (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

22. 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

23. 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

24. County Board of Equalization Duty to Equity
A.R.S (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

25. 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

26. State Board of Equalization Duty to Equity
A.R.S (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

27. 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

28. 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 )
“Within the territorial limits of the authority levying the tax” (AZ Constitution Art. 9, Sec 1)
May 2016

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

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

31. 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

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

33. Territorial Limits of Authority Levying Taxes
May 2016

34. 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

35. 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

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

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

38. 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

39. 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

40. 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

41. Questions?
May 2016