United States: Overview Of The Arizona Property Tax Structure

Originally published in June 2001

All Property Subject to Taxation Unless Exempted. All property in the state, whether real or personal, is subject to property taxation unless specifically exempted by the laws of the United States, the Arizona Constitution, or by law under the provisions of the Arizona Constitution.

All property in the State not exempt under the laws of the United States or under this Constitution or exempt by law under the provisions of this section shall be subject to taxation to be ascertained as provided by law.

All property in this state shall be subject to taxation, except . . .

The Constitution, as previously mentioned, provides that all property in the state must be subject to taxation, unless exempted by the Constitution (or by federal law). The only authority for exempting property is the Constitution. The Arizona legislature does not have the power, by itself, to exempt property. The Constitution does give authority to the legislation to enact specific exemptions dealing with the property of non-profit organizations. The Constitution indicates that such property "may" be exempt as "provided by law". See Article IX, § 2(2). Pursuant to this language, the Arizona legislature has implemented this authority by enacting a number of exemptions for certain types of non-profit organizations and their property. Those exemptions are laid out in A.R.S. § 42-11101 to 11128. It must 2 Copyright Ó 2001 by PATRICK DERDENGER 267976 5/01 be noted, though, although the Constitution has empowered the legislature to implement exemptions for non-profit organizations, all non-profit organizations have not been given such an exemption, but only those specified in the exemption statutes.

• Government Property.
• Non-Profit Organizations -- Educational, Charitable and Religious Associations or Institutions.
• Public Debts.
• Household Goods.
• Inventory of a Retailer or Wholesaler.
• $50,000 Exemption for Business Personal Property.
• Veterans Exemption.
• Disabled Veterans -- Service Connected Disability.
• Disabled Veterans -- Nonservice Connected Disability.
• Widow Exemption.
• Widower Exemption.
• Disabled Persons.
• Manufacturers Inventory.
• Non-Commercial Watercraft.
• Aircraft Subject to License Tax.

Article IX, § 2 of the Arizona Constitution provides that property of educational, charitable and religious associations or institutions not used or held for profit may be exempt from taxation by law. The Legislature has implemented this constitutional provision in A.R.S. §§ 42-11101 and following. Following is a listing of the statutory exemptions for non-profit organizations:

1. Educational Institutions and Libraries.
2. Hospitals.
3. Health Care Institutions for the Handicapped and Aged.
4. Apartment Facilities for Handicapped and Aged.
5. Charitable Institutions for Relief of Indigent and Afflicted.
6. Agricultural Societies.
7. Churches.
8. Cemeteries.
9. Observatories.
10. Animal Shelters.
11. Parkland held by 501(e)(3) Organization to be transferred to state or political subdivision.
12. Property held to Protect of Scientific, Geological, Natural, or Archaeological Resources.
13. Property of Musical, Dramatic and Other Groups.
14. Property of Volunteer Fire Departments.
15. Property of Volunteer Nonprofit Organizations.
16. Property of Roadway Cleanup Organizations.
17. Veterans’ Organizations.
18. Charitable Community Service Organizations.
19. Fraternal Societies.

Arizona has adopted a property classification scheme in which property is generally classed according to its use. Different assessment ratios apply to the different classes of property. Following are the various classes and the assessment rates (See A.R.S. §§ 42-12001 and following and §§ 42-15001 and following):

1. Class 1: mines, standing timber, utilities and commercial/industrial property – 25% (A.R.S. § 42-1201). Class 1 is divided into the following subclasses.

1. Producing mines and mining claims, personal property used on mines and mining claims, improvements to mines and mining claims and mills and smelters operated in conjunction with mines and mining claims that are valued at full cash value pursuant to § 42-14058.

2. Standing timber that is value at full cash value.

3. Real and personal property of gas and electric utility companies that are valued at full cash value or pursuant to § 42-14151, as applicable.

4. Real and personal property of airport fuel delivery companies that are valued pursuant to § 42-14503.

5. Real and personal property that is used by producing oil, gas and geothermal resources interests that are valued at full cash value pursuant to § 42-14102.

6. Real and personal property of water, sewer and wastewater utility companies that are valued at full cash value pursuant to § 42-14151.

7. Real and personal property of pipeline companies that are valued at full cash value pursuant to § 42-14201.

8. Real and personal property of shopping centers that are valued at full cash value or pursuant to chapter 13, article 5 of this title, as applicable.

9. Real and personal property of golf courses that are valued at full cash value or pursuant to § 42-13151.

10. All property, both real and personal of manufacturers, assemblers or fabricators valued under the provisions of this title.

11. Real property and improvements that are devoted to any other commercial or industrial use, other than property that is specifically included in another class described in this article, and that are valued at full cash value.

12. Personal property that is devoted to any other commercial or industrial use, other than property that is specifically included in another class described in this article, and that is valued at full cash value.

13. Real and personal property that is used in communications or transmission facilities and that provides public telephone or telecommunications exchange or inter-exchange access for compensation to effect two-way communication to, from, through or within this state.

2. Class two: agricultural, range and vacant land, nonprofit property (not exempt) - 16%.

3. Class three: owner-occupied residential - 10%.

4. Class four: rental residential - 10% for 1994 and thereafter.

5. Class five: railroads. Private car companies and airlines – 22%.

6. Class six: noncommercial historic property; foreign trade zone property; military re-use zone property; qualified manufacturing business property (enterprise zones) - 5%.

7. Class seven: class three commercial historic property -25%, but subtracting for up to 10 years all but 1% of the full cash value of restoration modification.

8. Class eight: class six historic property. The ratio for class six but subtracting for up to 10 years all but 1% of the full cash value of restoration modification.

9. Class nine: improvements on public property - 1%.

Partially completed or vacant improvements are classed according to their intended use. See A.R.S. § 42-12051. See also Golder v. Department of Revenue, 123 Ariz. 260, 599 P.2d 216 (1979).

"Assessed value" for each parcel is determined by applying the appropriate assessment ratio, from the above listing, to the full cash value and limited property value for that parcel. A.R.S. § 42-11001.

Classification is based upon the use of the property, and where individual parcels may have several uses, a "mixed" ratio must be used. See A.R.S. § 42- 15012.B. The Assessment Procedures Manual (pp. 3.2.2 to 3.2.7) provides the procedure for calculating the effective assessment ratio for mixed use parcels. It requires that the proportion of full cash value of property devoted to each use in the parcel be used to compute the effective assessment ratio. Land area or other measures may not be used for that calculation. Steps in the calculation procedure are:

1. Identify various property uses on the parcel and the legal class for each. Identify the uses for land and improvements separately.

2. Determine the full cash value for land only as applicable to use in each legal class in the parcel. Determine the percentage of the total parcel land value devoted to each use. This percentage is needed for input to the computer for computer-generated ratios. Develop the assessed value of each legal class by multiplying the full cash value in each legal class by the assessment ratio for the class, then adding the results. This recognizes the mixed use of the land. Divide the total assessed value by the total full cash value to arrive at the land assessment ratio for this mixed use.

3. Determine the full cash value for improvements in each portion of the parcel devoted to use in each legal class in the same manner as in step 2. This will develop the assessment ratio for this mixed use as it applies to the improvements.

4. Add the full cash values and the assessed values for land and improvements for the parcel. Divide the sum of the assessed values by the sum of the full cash value to yield the overall assessment ratio for the parcel which recognizes the mixed use of the property.

5. The limited property value is multiplied by the overall assessment ratio to arrive at the assessed limited property value for the parcel.

EXAMPLE: Duplex with One Side Owner’s Residence, the Other Side Rented Residential Property. To calculate the mixed ratio for the land:

a. Step 1. A 5 acre parcel of land of which 1 acre is improved and 4 acres are undeveloped. The value of the undeveloped land is $7,500 per acre while the developed land is valued at $20,000 per acre. The duplex sits on the 1 acre of developed land and is valued at $100,000 with each side identical. The total limited property value of the land and the duplex is $125,000. 

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