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ARIZONA STATE SENATE
Fifty-Fourth Legislature, First Regular Session
property taxes; valuation; property modifications
Purpose
Specifies how the limited property value (LPV) is calculated in situations in which property has been modified by construction, destruction, demolition, as well as the modification of tenant improvements, deferred maintenance, repair or replacement of improvements.
Background
Current statute states that the LPV shall be established at a level or percentage of full cash value (FCV) that is comparable to that of other properties of the same or similar use or classification, including:
1) property that was erroneously totally or partially omitted from the property tax rolls in the preceding tax year;
2) property for which a change in use has occurred since the preceding tax year;
3) property that has been modified by construction, destruction or demolition since the preceding valuation year; and
4) property that has been split, subdivided or consolidated from January 1 through September 30 of the valuation year, except for cases that result from an action initiated by a governmental entity (A.R.S. § 42-13302).
The Arizona Department of Revenue's (ADOR) states, "although Rule B must be used when any new construction equals ten percent or more of the prior valuation year's FCV, an assessor should use discretion in determining whether Rule A or Rule B will be applied in the following situations:
1) the assessor has updated the listing of a property’s characteristics which results in an increase in the FCV;
2) the interior of a property has been completely renovated/modified which changes the property’s effective age;
3) partial omissions, wherein the portion of a property that was omitted from the tax roll is less than ten percent of the prior valuation year's FCV;
4) changes in classification, including “qualified” agricultural classification, wherein the increase in FCV is less than ten percent of the prior valuation year's FCV;
5) new construction, wherein the new construction adds less than ten percent to the prior valuation year's FCV; and
6) the demolition, destruction or removal of existing improvements, wherein the FCV remaining is equal to, or exceeds, ninety percent of the prior valuation year's FCV, unless the elimination of the improvements also results in a change of legal classification (e.g., if the parcel is changed from improved to vacant land)" (ADOR Updated Assessment Procedures Manual).
Provisions
1. Specifies that LPV shall be established at a level or percentage of FCV that is comparable to that of other properties:
a) upon a change in property classification, rather than a change in use;
b) such that the total added value of the modification, net of any destruction or demolition, is equal to or greater than 20 percent of the FCV in the current tax year, except that a modification for the purpose of tenant improvements, deferred maintenance, repair or replacement of an improvement or compliance with current building codes since the preceding valuation year is excluded for the calculation; and
c) that have been split or consolidated from January 1 through September 30 of the valuation year, except for cases that result in a total overall FCV change that is equal to or less than 20 percent of the split or consolidated parcels.
2. Specifies that in the case of property that is split or consolidated, the LPV shall be established at a level or percentage of FCV that is comparable to that of other properties of the same or a similar use or classification when the total value increase is equal to or greater than 20 percent of the FCV in the preceding valuation year.
3. Removes the subdivision of properties from the requirements of determining LPV in cases of modification.
4. Limits the statute of limitations to three years after a modification, omission or change.
5. Makes technical and conforming changes.
6. Becomes effective on the general effective date.
Prepared by Senate Research
February 18, 2019
CS/kja