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House Engrossed Senate Bill
low-income multifamily housing; valuation |
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State of Arizona Senate Fifty-fifth Legislature First Regular Session 2021
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SENATE BILL 1076 |
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AN ACT
amending section 42-12004, Arizona Revised Statutes; amending title 42, chapter 13, Arizona Revised Statutes, by adding article 12; relating to property tax.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 42-12004, Arizona Revised Statutes, is amended to read:
42-12004. Class four property
A. For purposes of taxation, class four is established consisting of:
1. Real and personal property and improvements to the property that are used for residential purposes, including residential property that is owned in foreclosure by a financial institution, that is not otherwise included in another classification and that is valued at full cash value. The homesite that is included in class four may include:
(a) Up to ten acres on a single parcel of real property on which the residential improvement is located.
(b) More than ten, but not more than forty, acres on a single parcel of real property on which the residential improvement is located if it is zoned exclusively for residential purposes or contains legal restrictions or physical conditions that prevent the division of the parcel. For the purposes of this subdivision, "physical conditions" means topography, mountains, washes, rivers, roads or any other configuration that limits the residential usable land area.
2. Real and personal property and improvements to the property that are used solely as leased or rented property for residential purposes, that are not included in class one, two, three, six, seven or eight and that are valued at full cash value.
3. Child care facilities that are licensed under title 36, chapter 7.1 and that are valued at full cash value.
4. Real and personal property and improvements to property that are used to operate nonprofit residential housing facilities that are structured to house or care for persons with disabilities or who are sixty-two years of age or older and that are valued at full cash value.
5. Real and personal property and improvements that are used to operate licensed residential care institutions or licensed nursing care institutions that provide medical services, nursing services or health related services and that are structured to house or care for persons with disabilities or who are sixty-two years of age or older and that are valued at full cash value.
6. Real and personal property consisting of no more than eight rooms of residential property that are leased or rented to transient lodgers, together with furnishing no more than a breakfast meal, by the owner who resides on the property and that is valued at full cash value.
7. Real and personal property consisting of residential dwellings that are maintained for occupancy by agricultural employees as a condition of employment or as a convenience to the employer, that is not included in class three and that is valued at full cash value. The land associated with these dwellings shall be valued as agricultural land pursuant to chapter 13, article 3 of this title.
8. Real property and improvements to property constituting common areas that are valued pursuant to chapter 13, article 9 of this title.
9. Real and personal property that is defined as timeshare property by section 32-2197 and valued pursuant to chapter 13, article 10 of this title, except for any property used for commercial, industrial or transient occupancy purposes and included in class one to the extent of that use.
10. Real and personal property and improvements that are used for residential purposes, and that are leased or rented to lodgers, except for:
(a) Property occupied by the owner of the property as the owner's primary residence and included in class three.
(b) Property used for commercial purposes and included in class one.
11. Low-income multifamily residential rental properties that are valued pursuant to chapter 13, article 12 of this title.
B. Subsection A, paragraphs 4 and 5 of this section shall do not be construed to limit eligibility for exemption from taxation under chapter 11, article 3 of this title.
Sec. 2. Title 42, chapter 13, Arizona Revised Statutes, is amended by adding article 12, to read:
ARTICLE 12. VALUATION OF LOW-INCOME MULTIFAMILY
RESIDENTIAL RENTAL PROPERTY
42-13601. Definitions
In this article, unless the context otherwise requires:
1. "Conventional multifamily property" means a residential rental property that does not meet the requirements prescribed in paragraph 3 of this section.
2. "Low-income housing tax credit program" means the federal low-income housing tax credit program established by the tax reform act of 1986, codified in section 42 of the internal revenue code and administered by the Arizona department of housing pursuant to section 35-728 to encourage construction and rehabilitation of low-income rental housing.
3. "Low-income multifamily residential rental property" means multifamily residential property to which all of the following apply:
(a) The owner received an allocation of federal income tax credits through the low-income housing tax credit program.
(b) The property remains both income and rent restricted consistent with the low-income housing tax credit program and the provisions of the declaration of affirmative land use restrictive covenants agreement recorded on the property. The requirement of this subdivision is met if an affirmative land use restrictive covenants agreement is not yet recorded on the property but the property is otherwise subject to both income and rent restrictions under the low-income housing tax credit program.
(c) A federal, state or tribal court has not entered a judgment or order based on a finding that an act or omission of an owner or operator of the property constitutes a breach or violation of either:
(i) The declaration of affirmative land use restrictive covenants agreement recorded on the property.
(ii) Restrictions under the low-income housing tax credit program imposed on the property but not contained within an affirmative land use restrictive covenants agreement.
(d) The restrictions apply to all units on the property except employee units.
42-13602. Applicability of article; property
Property that is subject to valuation by the county assessor under this article consists of land and buildings of low-income multifamily residential rental property.
42-13603. Valuation; income method; requirements; confidentiality; definitions
A. Subject to section 42-13604, this article allows the owner of low-income multifamily residential rental property to elect a statutory income method for valuing the low-income multifamily residential rental property.
B. On timely election by the owner of a low-income multifamily residential rental property, the county assessor shall value property under this article based on the income method to value using the actual annual income and actual annual expenses of the property and using a capitalization rate that is based on the prevailing capitalization rate for a conventional multifamily property in the same geographic area adjusted to account for the differences between low-income multifamily residential rental properties and conventional multifamily properties, including the additional risk that the recorded affirmative land use restrictive covenants agreement places on the net operating income from the property, the restriction to the use of the property for affordable housing, the time period that the income and use restrictions remain in effect on the property and the illiquidity caused by the reduced pool of qualified potential buyers. After the capitalization rate is determined, the county assessor shall add the capitalization rate to the effective tax rate before calculating the full cash value.
C. The owner of a low-income multifamily residential rental property may elect to have the valuation of the property determined by the income method to value by submitting the three most current annual audited financial statements required by the arizona department of housing to the county assessor before September 1 of the year immediately preceding the year for which the property will be valued. If the owner does not yet have three annual audited financial statements because the property is too new to the low-income housing tax credit program to have three years of audited data, the owner may submit and the county assessor shall use for valuation purposes the available audited financial statements and the pro forma income and expense data that was provided to the Arizona department of housing at the time the low-income housing tax credit application was submitted to the ARizona department of housing.
D. The department shall prescribe a form for an owner of a low-income multifamily residential housing tax credit project to elect to value the property pursuant to this article.
E. All information a taxpayer submits to the county assessor pursuant to this article is confidential pursuant to chapter 2, article 1 of this title.
F. If a property previously qualified for valuation under this article but has been fully transitioned to current use as a conventional multifamily property in compliance with 26 United States code section 42(h)(6)(E), the property shall no longer be valued under this article and the property's limited value shall be calculated pursuant to section 42-13302.
G. For the purposes of this section:
1. "Actual annual expenses" means all operating expenses, as reflected in the annual income and expense documentation submitted pursuant to subsection C of this section, including the following:
(a) Maintenance and repair costs.
(b) Supplies.
(c) Service contracts.
(d) Utilities.
(e) tenant internet service and other services required by the ARizona department of housing.
(f) administrative costs, including costs for the following:
(i) accounting and auditing.
(ii) office supplies.
(iii) compliance and asset management.
(iv) monitoring imposed by the Arizona department of housing.
(v) Attorney fees.
(vi) Payroll and payroll taxes.
(vii) Employee benefits.
(viii) Security.
(ix) supportive and any other services stipulated by the affirmative land use restrictive covenants agreement.
(x) Marketing, leasing, advertising and promotion.
(g) Property management fees.
(h) Ground and land lease costs.
(i) Property and liability insurance.
(j) Taxes, except property taxes determined pursuant to subsection B of this section.
(k) Required replacement and operating reserves.
(l) For properties for which the tenants pay their own utility costs, utility costs for common areas and vacant units.
(m) Any other costs imposed pursuant to the affirmative land use restrictive covenants agreement.
2. "Actual annual income":
(a) Means all operating income generated from the rental of real property, including rents, application and late fees and forfeited security deposits.
(b) Does not include the federal income tax credits or investment proceeds resulting from the federal income tax credits that are allocated to the owner.
42-13604. Required documentation
A. As a condition of valuation under this article, an owner or operator of low-income multifamily residential rental property must provide written documentation to the county assessor confirming that the property has been placed in service as a low-income multifamily residential rental property consistent with section 42 of the internal revenue code.
B. Internal revenue service form 8609 or an equivalent successor form designated by the internal revenue code that is signed by the Arizona department of housing or the certificate of occupancy and the declaration of affirmative land use restrictive covenants agreement recorded on the property satisfy the documentation requirement prescribed by this section.
42-13605. Appeals
A. An owner or operator of low-income multifamily residential rental property that opts into the income valuation method set forth in this article may appeal the value of the property pursuant to chapter 16 of this title. On appeal, the owner or operator may submit more recent income and expense data from the year preceding January 1 of the valuation year to be used in calculating the value of the property by the valuation method set forth in this article.
B. An owner or operator of low-income multifamily residential rental property that does not opt into the income valuation method set forth in this article may appeal the value of the property using the valuation method set forth in this article.