United States: Highlights Of Recent Arizona Property Tax Developments

Originally published November 17, 2000

PROPERTY TAX CASES.

Park Central Mall, LLC v. Maricopa County, Court of Appeals, 1 CA-TX 98-0020 (April 27, 2000 amended July 27, 2000). Court Cannot Issue Notice of Error for Current Year Until 3rd Monday in August.

When a county attempts to correct an assessment error for the current tax year by the Notice of Error procedures of A.R.S. § 42-16252, the county must wait until after the third Monday in August of that year before issuing the Notice of Error. In this case, Maricopa County issued the Notice of Error for the current year prior to the third Monday in August. The court invalidated that notice as premature. The assessor may still issue a September 30 th notice to pick up the new construction.

Bruce A. Friedemann v. James Lee Kirk, Pima County Treasurer, Arizona Court of Appeals, Division II, No. 2 CA-CV 99-0176 (June 20, 2000). An Owner of Real Property Was Barred From Redeeming the Tax Liens On the Property For Delinquent Property Taxes After Judgment Was Entered In a Judicial Foreclosure Action.

The property owner failed to pay past years property taxes and they became delinquent. As a result, property tax liens arose by statute on the property. Those liens were sold to a tax lien purchaser who paid the county the amount of the back taxes plus interest. The tax lien purchaser then brought a judicial foreclosure action to foreclose the property owner’s right to redeem the property by paying the amount of the back taxes. The property tax lien statutes provide that an owner may redeem the property by paying the full amount of the delinquent taxes, plus interest, plus costs but that must be done before a judgment is entered by the court in favor of the tax lien purchaser. In this case, Pima County accepted funds from the owner to redeem the property but after judgment of judicial foreclosure was entered against the property owner. The result was that the purchaser of the tax lien was entitled to a deed to the property and the owner of the property was precluded from redeeming the property and lost it.

Southwest Airlines Co. v. Arizona Department of Revenue and Maricopa County, Court of Appeals, 1 CA-TX 99-0005 (April 4, 2000). Only one $20,000 Attorney Fee Award May Be Made in a Case Even Though Case Went to Court of Appeals.

The issue in the Southwest case was the amount of attorneys’ fees that the taxpayer was statutorily entitled to. The attorney’s fee statute provides the limitation of $20,000 per "action." Southwest went through the Tax Court and then the Court of Appeals and requested fees totalling $40,000, $20,000 for each level of appeal. The Court of Appeals concluded that Tax Court proceedings and appellate court proceedings in the same case are not separate "actions" within the meaning of A.R.S. § 12-348, which authorizes the court to award up to $20,000 to a taxpayer who prevails on the merits in an action challenging the assessment or collection of taxes. The Court of Appeals limited Southwest’s attorney’s fee award to $20,000.

Aida Renta Trust v. Department of Revenue and Maricopa County, 314 Ariz. Adv. Rptr. 26 (App. Feb. 1, 2000). Maricopa county Not Required to Settle Case On Same Basis As Settlement With Other Taxpayers.

This case involved the issue of whether the equal protection clause and the uniformity clause required Maricopa County to extend the same settlement terms involving apartment valuation cases that it had offered to one set of taxpayers (the county and the taxpayers settled on that basis) to another set of taxpayers. The court concluded no, thereby permitting Maricopa County to settle one set of property tax cases with one group of taxpayers but litigate the same issue and the same legal theory with the second set of taxpayers, which were the plaintiffs in this case.

Frederickson v. Maricopa County, 1 CA-TX 98-0018 (opinion filed 11-26-99). Who Is a "New Owner" of Property – One Who Purchased Property After December 15th of Valuation Year.

The issue in this case was who is a "new owner" of property for purposes of bringing a property tax valuation appeal. A.R.S. §42-16205(B) provides that a "new owner" may appeal the valuation of property on or before December 15 th of the year in which the tax was levied. In the normal appeal circumstance, an owner of a property must bring the appeal by December 15 th of the year (valuation year) prior to the year in which the taxes are levied (tax year). Thus a tax appeal for the 1999 valuation year had to be filed by December 15, 1998. However, a "new owner" can bring an appeal for the 1999 year, by December 15, 1999. The court held that a new owner is one that purchased the property after December 15th of the valuation year.

Pima County Assessor v. Arizona State Board of Equalization, 1 CA-TX 98-0011 (opinion filed 9-30-99). May Taxpayer File Notice of Error After Appealing Valuation? Maybe.

Arizona has a property tax error correction mechanism in which a taxpayer may file a refund claim for overpaid property taxes going back up to three years if the taxing jurisdiction made a "error" in valuing or assessing the property. The issue was whether a property owner that had appealed the valuation of his property for the year in question is then precluded from subsequently filing a notice of error raising a different issue than valuation. The Court concluded that if the taxpayer knew of or reasonably should have discovered an "error" in sufficient time to assert its tax appeal, then the error correction statutes cannot later provide a remedy. If the "error" has escaped the taxpayer’s attention despite the exercise of reasonable care to discover it in time, the error correction mechanism can provide a remedy regardless of whether the taxpayer prosecuted a tax appeal for the tax year in question.

Airport Properties v. Maricopa County, 287 Ariz. Adv. Rptr. 26 (App. 1999) (petition for review denied). City Owned Improvements on Possessory Right, So Class 13 (1% ratio) Did Not Apply; Repeal of Possessory Interest Statutes Was Not An Unconstitutional Granting of An Exemption.

This case involves the old possessory interest statutes. The taxpayer built improvements on city land located at the Scottsdale Municipal Airport. The first issue was whether the taxpayer owned the improvements as an improvement on a possessory right (IPR) and thus was subject to tax as the owner but as Class 13 property with a 1% ratio, or whether the city owned the improvements which would then be taxed to the taxpayer as a possessory interest as Class 3 property with a 25% rate. The Court of Appeals followed its prior decision in Cutter Aviation v. Department of Revenue, 191 Ariz. 485, 958 P.2d 1 (1997), rev. denied (1998). The court held that the taxpayers did not enjoy the rights of control and disposition of the improvements and therefore did not own the improvements. The improvements were thus taxed as a possessory interest.

The second issue was whether the repeal of the possessory interest statutes amounted to an unconstitutional exemption because Article 9, section 2 of the Arizona Constitution requires that all property be subject to taxation unless specifically exempted by the constitution. The court rejected the county’s argument concluding that "subject to taxation" does not require that the property be continuously taxed but only that it be liable for taxation, leaving it to the legislature’s discretion whether particular categories of property are to be taxed. The repeal of the possessory interest statutes did not exempt such property but merely omitted that property from the state’s exercise of its power to tax "by dint of its sovereign political discretion".

Bahr v. State of Arizona, 287 Ariz. Adv. Rptr. 14 (App. 1999) (petition for review pending). Foreign Trade Zone Classification Is Constitutional (No Uniformity Clause Violation).

The issue presented in this case was the constitutionality of the classification of foreign trade zone property as class 8 property, with a 5% assessment ratio (commercial and industrial property is in class 3 with a 25% ratio). The issue is whether foreign trade zone treatment violated the uniformity clause because two properties identical in function could be taxed quite differently because one is located in a foreign trade zone and the other is not. The Court of Appeals held that the classification was constitutional because foreign trade zone property subject to comprehensive federal regulation where other similar property was not, justifying different classifications.

Cyprus Bagdad Copper Corporation v. Arizona Department of Revenue, 1999 Ariz. App. LEXIS 66 (4-22-99). Award of Expert Fees of $100,000 Plus Is Reasonable.

This case presented the issue of the reasonableness of the award of expert witness fees in a property tax appeal of $106,000. A.R.S. § 12-348 provides for the award of expert witness fees, without any cap, and the award of legal fees with a cap of $20,000 to a taxpayers if it prevails in a tax appeal, including a property tax appeal. The Tax Court awarded the taxpayers expert expenses in the amount of $106,000 and the Court of Appeals affirmed that such amount was reasonable.

Bank of America NTSA v. Maricopa County, 302 Ariz. Adv. Rptr. 18 (App.) (8-26-99). Bank’s Challenge to IPR Treatment Was a 42-204 Action and Not a Classification Appeal.

Bank of America brought an action under former A.R.S. § 42-204(C) which allows challenges to property tax alleged to have been assessed "illegally." That action can be brought within one year from the date of the payment of the first installment of the property tax for the year in question. The bank argued that the property was owned by the City of Phoenix and not by the bank and since the possessory interest tax had been repealed, the bank’s leasehold interest in the property was not subject to tax. The county argued that the city owned the land and the bank owned the building so the building could be classified as class 3, commercial and industrial property and taxed as an improvement on a possessory right (IPR). The county also argued that the bank’s claim was not an illegal tax challenge but rather a classification issue and the bank’s only mechanism for challenging the taxes was to bring a classification appeal under former § 42-177 which must be brought by November 1 of the tax year in question (1995), which was 12 months earlier than the date for filing a § 42-204 action. The Court of Appeals disagreed with the county holding that the issue centered around an illegally collected tax and that the bank timely brought its claim under former A.R.S. § 42-204(C).

U-Stor Bell, L.L.C. v. Maricopa County, TX97-00718; Arizona Storage Inns v. Maricopa County, TX 97-00762; Amerco Real Estate Company, Inc. TX97-000673 (6-15-00). Mini-Storage Units Used Solely to Store Household Goods Not Class 6 Residential Rental Property; On-Site Managers’ Apartments are Class 6 Rental Residential Property.

Sumitomo Sitix v. Maricopa County. Improvement On Possessory Right Is On Unsecured Taxable and Treated As Unsecured Personal Property; Thus Qualifying for Construction Work In Process Treatment.

Krausz v. Maricopa County, TX1998-00721. Court Held That Building Rented to Federal Government Is Class 3, Not Class 4. Court Considered the Use of the Building By the Landlord and Not By the Tenant. Taxpayer Argued That the Use By the Federal Government Was Non-Commercial Use and Building Should Be Property Classified As Class 4.

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