A historical review of the property tax in Arizona

              A HISTORICAL REVIEW OF THE PROPERTY TAX I N AI R ZONA



Prepared by House S t a f f October, 1977



TABLE OF CONTENTS



I



Introduction: 1. 2.



The Legal C o n s t r a i n t s on t h e System



Constitutional Constraints Statutory Constraints



I1 I11



The T e r r i t o r i a l Tax System Statehood t o 1963 1. 2.



-



1871



2

4



-



A General Overview



The S t a t e Tax Commission The Counties Role 9



IV V



Early Classifications o f Property The Revamping o f t h e System 1957 1. 2. 3.



-



1973



12



4. 5. 6.

VI



L e g i s l a t i v e Recognition o f t h e Problem Extraneous E f f o r t s a t Change The Courts and Southern P a c i f i c Company v. Cochise County L e g i s l a t i v e Response t o SPC v. Cochise County Constitutional Test o f C l a s s i f i c a t i o n L e g i s l a t i o n Through 1973



The MAS, t h e Homeowners Rebate System and t h e Department o f Revenue 1. 2. Three Year C y c l i c a l V a l u a t i o n and t h e Courts The Mu1t i p l e Regression A n a l y s i s Concept and t h e MLR Model The Homeowners Rebate Program and Class 5 P r o p e r t y The C r e a t i o n o f t h e Department o f Revenue



20

21 21 23 23



3. 4.

VII



The Current System/Timetable o f t h e Process 1. 2. The Current System Timetable o f t h e Process



VIII



Footnotes and Appendix



I



I. INTRODUCTION:



THE LEGAL CONSTRAINTS O THE SYSTEM N



The p r o p e r t y t a x , l i k e a l l o t h e r taxes, i s an enforced c o n t r i b u t i o n t o government. L i k e a l l o t h e r taxes, t h e a u t h o r i t y f o r t h e t a x l i e s i n t h e C o n s t i t u t i o n , and t h e implementation o f t h e t a x i s contained i n t h e s t a t u t e s . These two bodies of laws serve as c o n s t r a i n t s o r l i m i t s on t h e t a x , p r o t e c t i n g taxpayers from t h e p o t e n t ia1 excesses o f government. This f i r s t s e c t i o n o f t h e r e p o r t w i l l examine those l e g a l c o n s t r a i n t s i n a general form. This i s an attempt t o convey t o t h e reader t h e l i m i t s w i t h i n which t h e p r o p e r t y t a x system developed i n Arizona. The f o l l o w i n g f i v e s e c t i o n s o f t h i s r e p o r t w i l l t r a c e t h e development of t h e p r o p e r t y t a x from t e r r i t o r i a l days t o t h e presenl time. Included a r e s e c t i o n s t h a t examine the f i r s t c o d i f i e d system as i t e x i s t e d i n 1871; t h e system t h a t c a r r i e d t h e s t a t e from statehood t o t h e 1960's; l e g i s l a t i v e c l a s s i f i c a t i o n of p r o p e r t y d u r i n g t h e fore-mentioned p e r i o d ; t h e c o n d i t i o n s t h a t l e d t o t h e changes made between r o u g h l y 1963 and 1970; and, f i n a l l y , t h e changes made s i n c e 1970 t h a t have given Arizona i t s p r e s e n t system. Throughout these discussions, t h e c o n s t r a i n t s examined i n t h e f i r s t s e c t i o n o f t h i s r e p o r t w i l l continue t o appear as undercurrents i n t h e system. The s i x t h f o l l o w i n g s e c t i o n i s an attempt t o present t h e system as i t c u r r e n t l y e x i s t s i n t h e c h r o n o l o g i c a l o r d e r i n which i t must be administered. I n t h i s s e c t i o n , t h e c o n s t i t u t i o n a l c o n s t r a i n t s should be r e a d i l y apparent t o t h e reader.

1.



I C



Cons - titutional



Constraints



A r t i c l e I X Section 1 of t h e Arizona C o n s t i t u t i o n p r e s c r i b e s t h a t t h e power of t a x a t i o n s h a l l never be surrendered, suspended o r c o n t r a c t e d away. A d d i t i o n a l l y , taxes are t o be l e v i e d f o r p u b l i c purposes o n l y , and most i m p o r t a n t l y i n r e l a t i o n t o the property tax:



A l l taxes s h a l l be u n i f o r m upon t h e same c l a s s o f p r o p e r t y w i t h i n t h e t e r r i t o r i a l 1i m i t s o f t h e a u t h o r i t y 1e v y i ng t h e tax..



.



A r t i c l e I X Section 3 of t h e C o n s t i t u t i o n d e l i n e a t e s t h e duty o f t h e l e g i s l i l t u r e t o p r o v i d e f o r an annual t a x t o d e f r a y , when combined w i t h o t h e r soirrces o f revenue, t h e expenses of t h e s t a t e . This s e c t i o n and Section 9 a l s o p r e s c r i b e t h a t every law imposing a t a x s h a l l s t a t e t h e o b j e c t o f t h e t a x . A r t i c l e I X S e c t i o n 2 provides f o r a l l exemptions from t a x a t i o n and p r e s c r i b e s that:



A l l p r o p e r t y i n t h e s t a t e n o t exempt under t h e laws o f t h e U n i t e d States o r under t h i s c o n s t i t u t i o n , o r exempt by law under t h e p r o v i s i o n s o f t h i s s e c t i o n ( r e l a t i n g t o n o n - p r o f i t e d u c a t i o n a l , c h a r i t a b l e and r e l i g i o u s a s s o c i a t i o n s o r i n s t i t u t i o n s ) s h a l l be s u b j e c t t o t a x a t i o n t o be a s c e r t a i n e d by law. ( p a r e n t h e s i s added)



A r t i c l e I X S e c t i o n 11 p r o v i d e s t h a t " t h e manner, method and mode o f assessing, e q u a l i z i n g and l e v y i n g t a x e s " s h a l l be such as may be p r e s c r i b e d by law. A d d i t i o n a l l y t h e U n i t e d S t a t e s and A r i z o n a C o n s t i t u t i o n a l requirements of due process and equal p r o t e c t i o n a p p l y t o p r o p e r t y t a x a t i o n . Due process r e q u i r e s t h a t 1 ) the t a x p a y e r be g i v e n an o p p o r t u n i t y t o be heard r e g a r d i n g t h e amount of t a x l e v i e d , and 2 ) t h a t any t a x i n g scheme be r a t i o n a l l y r e l a t e d t o t h e accomplishment of t h e main goal o f r a i s i n g revenue by t a x i n g p r o p e r t y a c c o r d i n g t o i t s value. Equal p r o t e c t i o n r e q u i r e s t h a t taxpayers i n s i m i l a r circumstances be t r e a t e d a1 ike.



2.



S t a t u t o r y C o n- t r a i n t s s



I n o r d e r t o implement t h e p r o p e r t y t a x , s t a t u t e s have been enacted t h a t c r e a t e t h e system w i t h i n t h e g u i d e l i n e s e s t a b l i s h e d by t h e C o n s t i t u t i o n . To meet t h e u n i f o r m i t y c o n s t r a i n t a l l p r o p e r t y i n t h e s t a t e i s valued a t i t s f u l l cash v a l u e . F u l l cash value i s d e f i n e d as synonymous w i t h market v a l u e which means t h a t e s t i m a t e of value t h a t i s d e r i v e d a n n u a l l y by t h e use of s t a n d a r d a p p r a i s a l methods and techniques. The s t a t u t e s r e q u i r e t h a t t h e Department o f Revenue adopt such s t a n d a r d a p p r a i s a l methods and techniques. The s t a t u t e s have c r e a t e d a c l a s s i f i c a t i o n scheme f o r p r o p e r t y which i s p e r m i s s i b l e , so l o n g as t h e taxes a r e u n i f o r m w i t h i n each c l a s s . While a l l p r o p e r t y i n t h e s t a t e n o t exempted by t h e C o n s t i t u t i o n i s s u b j e c t t o t a x a t i o n , t h e r e a r e i n s t a n c e s where t h e l e g i s l a t u r e has chosen n o t t o t a x ; f o r example, l e a s e h o l d i n t e r e s t s and i n t a n g i b l e p r o p e r t y . The s t a t u t e s p r e s c r i b e an e q u a l i z i n g f u n c t i o n i n County Boards of E q u a l i z a t i o n and t h e S t a t e Board o f Tax Appeals D i v i s i o n 1.These e n t i t i e s , as w e l l as t h e extended appeals process, a r e designed t o assure t h a t t h e u n i f o r m i t y clause of t h e A r i z o n a C o n s t i t u t i ~ nand t h e equal p r o t e c t i o n and due process clauses o f t h e s t a t e and f e d e r a l c o n s t i t u t i o n s a r e met. With these b a s i c l e g a l c o n s t r a i n t s on t h e p r o p e r t y t a x system i n mind, t h e reader should b e t t e r appreciate t h e f o l l o w i n g sections. THE TERRITORIAL TAX SYSTEM



...



-



1871



I n 1871 t h e T e r r i t o r i a l L e g i s l a t u r e enacted a revenue code. The seventeen pages r e l a t i n g t o t a x a t i o n i n t h e Compiled Laws of A r i z o n a 1864 t o 1871 o u t l i n e d a p r o p e r t y t a x system o f t h e s i m p l e s t form. The Code designated each county s h e r i f f as b o t h t h e assessor and t h e t a x c o l l e c t o r o f t h e county. The s h e r i f f was charged w i t h t h e d u t y o f d e t e r m i n i n g between t h e f i r s t Mondays i n March and June t h e owners and t h e f u l l cash value of a l l p r o p e r t y i n t h e county s u b j e c t t o t a x a t i o n . The Code f u r t h e r p r o v i d e d t h a t a s s i s t a n t s c o u l d be h i r e d by each s h e r i f f and t h a t each p r o p e r t y owner i n t h e county was t o f i l e an a f f i d a v i t o f p r o p e r t y value.



The a f f i d a v i t o f p r o p e r t y v a l u e c o n t a i n e d a d e s c r i p t i o n , l o c a t i o n and v a l u e o f t h e owner's r e a l e s t a t e , improvements and personal p r o p e r t y . I f persons f i l i n g t h e a f f i d a v i t s were found t o have w i l l f u l l y excluded o r undervalued p r o p e r t y , t h e y c o u l d be t r i e d f o r p e r j u r y and t h e misrepresented o r o m i t t e d p r o p e r t y c o u l d be assessed a t f i v e times i t s f u l l cash value. As an i n c e n t i v e f o r t h e d i s c o v e r y o f f r a u d u l e n t r e p o r t s , t h e Code p r o v i d e d t h a t f i f t y p e r c e n t of t h e r e s u l t i n g p e n a l t y t a x would be p a i d t o persons b r i n g i n g such fraud t o t h e a t t e n t i o n of t h e a u t h o r i t i e s . From these p r o p e r t y r e p o r t s and h i s own i n v e s t i g a t i o n s , t h e s h e r i f f was t o compile an assessment r o l l a c c o r d i n g t o s t a t u t o r y g u i d e l i n e s . On t h e f i r s t Monday i n June, t h e s h e r i f f d e l i v e r e d t h e r o l l t o t h e c l e r k o f t h e county board of s u p e r v i s o r s . I f p r o p e r t y was o m i t t e d f r o m t h e r o l l by t h e s h e r i f f through h i s negl igence, he was 1 i a b l e f o r t h e taxes due. The s u p e r v i s o r s convened as t h e county Board o f E q u a l i z a t i o n on t h e f i r s t Monday i n J u l y t o s i t u n t i l t h e i r business was completed, b u t n o t l a t e r t h a n t h e l a s t day of t h e month. The Board o f E q u a l i z a t i o n c o u l d r a i s e o r l o w e r any v a l u a t i o n , and taxpayers c o u l d appear b e f o r e t h e Board. I f t h e Board wished t o r a i s e any v a l u a t i o n , i t had t o g i v e f i v e days' n o t i c e t o t h e p r o p e r t y owner. The increases and decreases i n v a l u a t i o n made a t t h e J u l y meeting were proposals, t o be confirmed and ordered a t a second meeting convening on t h e f i r s t Monday i n August. The t e r r i t o r i a l laws p r o v i d e d t h a t t h e Boards o f E q u a l i z a t i o n r e t u r n t h e t a x r o l l s as f i n a l l y e q u a l i z e d t o t h e s h e r i f f on t h e t h i r d Monday i n August, a f t e r t h e l e v y o f taxes. The t e r r i t o r i a l t a x r a t e was p r e s c r i b e d a t $.50 and t h e s t a t u t e s p l a c e d a 1 i m i t o f $2.00 on t h e county t a x r a t e . The s h e r i f f was t h e n t o c o l l e c t t h e taxes by t h e d e l i n q u e n t d a t e of t h e f i r s t o f December.



I f t h e s h e r i f f attempted t o c o l l e c t t h e taxes and t h e taxpayer n e g l e c t e d o r r e f u s e d payment, t h e s h e r i f f was empowered t o c o n f i s c a t e p r o p e r t y s u f f i c i e n t t o s a t i s f y t h e t a x and such p r o p e r t y c o u l d be s o l d a t p u b l i c s a l e i n t h r e e days. I n t h e event t h a t taxes were n o t p a i d by December, and t h e s h e r i f f c o u l d n o t s a t i s f y t h e taxes through c o n f i s c a t i o n , t h e county a t t o r n e y was r e q u i r e d t o f i l e s u i t f o r t h e attachment o f p r o p e r t y . A l l d e l i n q u e n t taxes c a r r i e d a u n i f o r m p e n a l t y o f t w e n t y - f i v e p e r cent.

The T e r r i t o r i a l Code p r o v i d e d exemptions from t a x a t i o n t o 1 ) governmental and e d u c a t i o n a l p r o p e r t i e s ; 2 ) asylums, poor houses and o t h e r c h a r i t a b l e i n s t i t u t i o n s ; 3 ) churches and r e 1 i g i o u s b u i l d i n g s ; 4 ) t h e p r o p e r t y o f Free and Accepted Masons, t h e Independent Order o f Odd Fellows,and o t h e r benevolent s o c i e t i e s ; 5 ) cemeteries; and 6 ) t h e p r o p e r t y o f widows and orphans n o t t o exceed t h e amount of $1,000 p e r f a m i l y . The Code governed p r o p e r t y t a x a t i o n u n t i l r o u g h l y 1877 when a Code r e v i s i o n was made. I t i s i n t e r e s t i n g t o n o t e t h a t t h e major p r o v i s i o n s o f t h e 1871 Code established: 1) t h e l e v e l a t which assessments were t o be made ( f u l l cash v a l u e ) , t h e o f f i c i a l s and t h e t i m e frame governing t h e assessment o f p r o p e r t y ,



2)



3) 4)

5)



an o p p o r t u n i t y o f v a l u a t i o n appeal by t h e t a x p a y e r s , a common d a t e and method f o r t h e l e v y i n g and c o l l e c t i o n o f t a x e s , and exemptions from t a x a t i o n .



A l t h o u g h o t h e r m a j o r p r o v i s i o n s w o u l d come t o be c o n s i d e r e d e s s e n t i a l t o a t a x a t i o n system, e.g., u n i f o r m i t y o f l i k e p r o p e r t i e s between c o u n t i e s , t h i s 1871 Code c o n t a i n e d p r o v i s i o n s f o r t h e e s s e n t i a l elements o f t a x a t i o n t h a t would be massaged, m o d i f i e d and d e a l t w i t h f o r t h e n e x t 100 y e a r s .



STATEHOOD TO 1963



-



A GENERAL OVERVIEW



I m m e d i a t e l y a f t e r s t a t e h o o d , t h e F i r s t A r i z o n a L e g i s l a t u r e r e e n a c t e d most o f t h e t e r r i t o r i a l laws t h a t had e x i s t e d a t t h e t i m e . I n t h e area of p r o p e r t y t a x a t i o n , a l l o f t h e e x i s t i n g laws ( t h a t were m o d i f i c a t i o n s o f t h e o l d 1871 Code) were r e e n a c t e d w i t h t h e a d d i t i o n o f t h e S t a t e Tax Commission. The concept of t h e Tax Commission, t h a t i s , a body o f e l e c t e d o f f i c i a l s charged w i t h t h e s u p e r v i s i o n o f revenue c o l l e c t i o n i n t h e s t a t e , was based i n t h e s t r o n g p o p u l i s t s e n t i m e n t s t h a t e x i s t e d a t t h e t i m e . The s t a t u t o r y g u i d e l i n e s o f t h e Commission i n A r i z o n a e v o l v e d f r o m s i m i l a r concepts t h a t had e x i s t e d i n Wisconsin an ~ a n s a s . ' S i n c e p r o p e r t y t a x a t i o n was t h e p r i m a r y s o u r c e of revenue t o t h e s t a t e g , t h e d u t i e s o f t h e Commission r e l a t e d o n l y t o p r o p e r t y t a x e s . However, t h r o u g h t h e y e a r s t h e Commission would be d e l e q a t e d a d m i n i s t r a t i o n o v e r t h e s a l e s , use, income, and l u x u r y t a x e s , as t h e s e revenue sources were added t o the f i n a n c i a l s t r u c t u r e o f Arizona. The d u t i e s o f t h e o r i g i n a l Tax Conlmission were b r o a d l y o u t l i n e d : s u p e r v i s e t h e a d m i n i s t r a t i o n o f t h e assessment and p r o p e r t y t a x laws of t h e s t a t e . The g o a l s o f t h e s u p e r v i s i o n were s p e c i f i c : a l l s i m i l a r p r o p e r t i e s were t o be valued e q u a l l y and be v a l u e d a t f u l l cash v a l u e . To e n f o r c e t h e i r s u p e r v i s i o n d u t i e s , t h e Comrnission was q r a n t e d b r o a d powers. The Commi ss ion c o u l d :



e

-



1) i s s u e d i r e c t i v e s t o c o u n t y assessors and t r e a s u r e r s , 2 ) p r e s c r i b e s t a n d a r d i z e d assessment r o l l s and procedures, and 3 ) c e n t r a l l y v a l u e , a t t h e s t a t e l e v e l , p r o d u c i n g mines, r a i l r o a d s , t e l e g r a p h and t e l e p h o n e companies, express companies and p r i v a t e c a r companies.

b!ith t h e e x c e p t i o n o f t h e a b o v e - o u t l i n e d p r o p e r t i e s , t h e c o u n t i e s a t t h e t i m e o f s t a t e h o o d were charged w i t h t h e a c t u a l assessment process. The S t a t e C o n s t i t u t i o n p r o v i d e d f o r t h e o f f i c e s o f t h e c o u n t y assessor 'ind county t r e a s u r e r , and i n A r t . I X , S e c t i o n 11, i t p r e s c r i b e d t h a t t h e c o u n t y boards o f s u p e r v i s o ~ - swere t o a c t as c o u n t y boards o f e q u a l i z a t i o n . These e q u a l i z a t i o n boards were d e s i g n a t e d as t h e f i n a l a r b i t r a t o r o f p r o p e r t y v a l u e s w i t h i n t h e i r c o t r n t i e s . A s t a t e board of e q u a l i z a t i o n was c o n t a i n e d i n t h e s t a t u t e s composed o f t h e 14 chairmen of t h e s e v e r a l c o u n t y boards o f s u p e r v i s o r s .



b I C



C



1.



The S t a t e Tax Commission



I n 1912 t h e f i r s t Tax Commission took o f f i c e and found t h e revenue laws of t h e s t a t e t o be "weak, i n e f f e c t u a l , c o n f l i c t i n g and inadequate.. " The system t h a t had e x i s t e d p r i o r t o statehood had produced assessments t h a t had g e n e r a l l y r u n "25 t o 70% ( o f f u l l cash value o f s i m i l a r p r o p e r t i e s ) , according t o l o c a l pressure brought t o bear on t h e assessor by t h e p r o p e r t y owner and t h e assessor's a b i l i t y and d i s p o s i t i o n t o f a i r l y assess p r o p e r t y i n t h e county." I n i t s charge o f s u p e r v i s i o n of such a c h a o t i c s t a t e o f assessing, the Commission f e l t t h a t i t would be i n i t i a l l y impossible t o assess a l l p r o p e r t y a t i t s f u l l cash value, as was s p e c i f i e d by s t a t u t e . So, i n 1912 the Commission ordered t h a t a l l p r o p e r t y be assessed e q u a l l y , a t 50% o f i t s f u l l cash value.



.



Even w i t h such an a c t i o n , t h e r e s u l t s o f the 1912 assessment were astounding. Statewide assessed v a l u a t i o n increased 43%, b u t the Commission was convinced t h a t t h e assessment could have been h i g h e r i f county boards had not, i n f a c t , placed p r o p e r t i e s on t h e t a x r o l l a t 25% o f f u l l cash value. The Commission had no c o n t r o l over county boards o f e q u a l i z a t i o n , and the boards ( s e n s i t i v e t o p o l i t i c a l pressure) o f t e n negated t h e work o f t h e Commission.



A case i n p o i n t was Yavapai County. I n 1912 t h e Tax Commission valued a l l producing mines i n t h e s t a t e and apportioned the v a l u a t i o n s t o the counties a t 50% o f t h e f u l l cash value. These v a l u a t i o n s were entered on the assessment r o l l s by t h e county assessors. The Yavapai County board o f e q u a l i z a t i o n c u t t h e v a l u a t i o n o f mines i n i t s county a r b i t r a r i l y by 50%. Since t h e C o n s t i t u t i o n gave f i n a l e q u a l i z i n g powers t o t h e counties, t h e Commission could n o t o f f s e t t h e a c t i o n o f t h e county board.

Actions such as t h i s q u i c k l y l e d t o a sentiment i n t h e L e g i s l a t u r e t h a t broader powers were needed by t h e Commission. An amendment t o t h e C o n s t i t u t i o n was r e f e r r e d by the L e g i s l a t u r e f o r a vote o f the people. The amendment removed t h e p r o v i s i o n t h a t allowed county boards t o be f i n a l a r b i t r a t o r s o f value w i t h i n t h e i r county and s u b s t i t u t e d i n i t s p l a c e a p r o v i s i o n reading: The manner, method and mode o f assessing , equal i z i ng and l e v y i n g taxes i n t h e S t a t e o f Arizona s h a l l be such as may be p r e s c r i b e d by law. The amendment passed w i t h an overwhelming m a j o r i t y i n t h e general e l e c t i o n of 1912 and i n 1913 l e g i s l a t i o n was passed t h a t enhanced the power o f t h e Commission. The Commission was g i v e n t h e power t o supervise and t o have c o n t r o l over county bo rds of e q u a l i z a t i o n and was a l s o designated as the S t a t e Board o f Equalization.



8



A f t e r t h i s a c t i o n by t h e L e g i s l a t u r e , t h e powers and d u t i e s o f t h e S t a t e f a x Commission were f i r m l y e s t a b l i s h e d i n t h e area o f p r o p e r t y t a x a t i o n . This b a s i c system would c a r r y t h e S t a t e from 1913 u n t i l roughly 1963. B r i e f l y , the four major d u t i e s of t h e S t a t e Tax Commission can be summarized as f o l l o w s :



1)



2)



3)



4)



To v a l u e and assess a l l p r o d u c i n g mines, r a i l r o a d s , t e l e p h o n e and t e l e g r a p h p r o p e r t y , p r i v a t e c a r l i n e s and express companies w i t h i n t h e s t a t e . To s u p e r v i s e and d i r e c t t h e work o f c o u n t y and c i t y assessors, boards o f s u p e r v i s o r s , t r e a s u r e r s , c o u n t y a t t o r n e y s and any and a l l o t h e r o f f i c i a l s e n t r u s t e d w i t h t h e c a r r y i n g o u t o f t h e t a x laws o f t h e s t a t e . To p r e p a r e a1 1 books, forms, b l a n k s and i n t e r r o g a t o r i e s t h a t were necessary, i n o r d e r t o o b t a i n t h e p r o p e r i n f o r m a t i o n upon w h i c h t o base t h e f i n a l v a l u a t i o n and assessments. To s i t as a S t a t e Board o f E q u a l i z a t i o n and e q u a l i z e t h e f i n a l v a l u a t i o n s f i x e d i n t h e f i r s t i n s t a n c e by a s s e s s i n g o f f i c i a l s , and f i n a l l y t o f i x t h e t d x r a t e necessary f o r a l l s t a t e purposes.



I n r e g a r d t o Number 1 above, t h e f i r s t c o d i f i e d laws o f t h e s t a t e p r e s c r i b e d t h a t t h e v a l u e s o f t h e s e p r o p e r t i e s be a p p o r t i o n e d t o t h e c o u n t i e s by t h e Comm i s s i o n w i t h t h e e x c e p t i o n o f p r i v a t e c a r companies and express companies. These two e n t i t i e s had s t a t e i n - l i e u t a x e s l e v i e d w h i c h were v e r y s i m i l a r t o t h e laws p r e s e n t l y i n e x i s t e n c e : p r i v a t e c a r companies had an average s t a t e w i d e t a x r a t e l e v i e d and e x p r e s s companies had a 6% g r o s s proceeds t a x l e v i e d . I n l a t e r y e a r s t h e Commission became r e s p o n s i b l e f o r t h e assessing of u t i l i t i e s , a i r c r a f t p r o p e r t i e s , p r o d u c i n g o i l and gas w e l l s , and, f o r a s h o r t t i m e , t h e v a l u a t i o n o f s t o c k s , bonds, and l o a n n o t e s . The powers o f t h e S t a t e Board o f Equal i z a t i o n (Number 4 above) were designed t o meet t h r e e l e g a l c o n s t r a i n t s on t h e p r o p e r t y t a x system: assessment a t f u l l cash v a l u e ( a s t a t u t 0 r . y c o n s t r a i n t ) , u n i f o r m i t y o f assessments ( a C o n s t i t u t i o n a l c o n s t r a i n t ) , and, f i n a l l y , t o o f f e r an avenue o f appeals f o r c e n t r a l l y assessed p r o p e r t i e s . ( A r i z o n a and f e d e r a l cons t i t u t i o n a l p r o v i s i o n o f due p r o c e s s . ) I n r e g a r d t o t h e f i r s t c o n s t r a i n t , t h e s t a t u t e s were d e f i n i t e i n t h e concept o f ' f u l l cash v a l u e , d e f i n i n g t h e t e r m t o be: the p r i c e a t which p r o p e r t y would s e l l i f v o l u n t a r i l y o f f e r e d f o r s a l e by t h e owner t h e r e o f , upon such terms as such p r o p e r t y i s u s u a l l y s o l d , and n o t t h e p r i c e w h i c h m i g h t be r e a l i z e d i f such p r o p e r t y wds s o l d a t forced sale. 6 T h i s d e f i n i t i o n , w h i c h remained i n t h e s t a t u t e s u n t i l 1967, was t h e t a r g e t assessnient l e v e l t h a t a l l c o u n t i e s s h o u l d s t r i v e f o r .



fi



I f t h e Commission found t h a t i n d i v i d u a l p r o p e r t i e s , c l a s s e s o f p r o p e r t i e s o r p r o p e r t i e s i n e n t i r e c o u n t i e s were n o t assessed a t f u l l cash v a l u e , i t c o u l d o r d e r t h e v a l u a t i o n o f t h a t p r o p e r t y t o be e q u a l i z e d a t f u l l cash v a l u e . By t a k i n g t h i s a c t i o n t h e Commission, s i t t i n g as t h e S t a t e Bodrd o f E q u a l i z a t i o n , would assure t h a t t h e c o n s t i t u t i o n a l r e q u i r e m e n t f o r u n i f o r m i L w o u l d be met: y

A l l t a x e s s h a l l be u n i f o r m upon t h e same c l a s s o f P . r o.p e r t y w i t h i n t h e t e r r i t o r i a l l i m i t s o f t h e a u t h o r i t y l e v y i n g t h e t a x . . ./



L



I f t h e various counties were assessing p r o p e r t i e s a t various l e v e l s o f f u l l cash value, then t h e statewide t a x r a t e s e t by t h e Commission would n o t be equal o r uniform through t h e s t a t e .

This problem o f u n i formi t y would c o n t i n u a l l y plague the Commission throughout i t s existence. To a i d i n t h e enforcement o f u n i f o r m i t y , statewide r e v a l u a t i o n s were mandated by t h e L e g i s l a t u r e i n 1931, 1947, and 1963. The l a s t was p r e c i p i t a t e d by t h e landmark case brought by a r a i l road company 8, and would mark t h e beginning o f t h e end of t h e S t a t e Tax Commission. To t h e t h i r d l e g a l c o n s t r a i n t , due process, t h e Board served as t h e a p p e l l a t e body f o r t h e p r o p e r t y assessed by i t s members s i t t i n g as t h e Tax Commission. U n t i l 1928 the a c t i o n s o f t h e Board were w i t h o u t appeal f o r taxpayers, unless t h e Board acted a r b i t r a r i l y . I n 1926 t h e Arizona Supreme Court r u l e d i n Yuma County v. Arizona Swansea R a i l r o a d Company %(30A r i z . 27) t h a t t h e S t a t e Board of E q u a l i z a t i o n " i n f i x i n g and e q u a l i z i n g value, a c t ( s ) i n a q u a s i - j u d i c i a l c a p a c i t y and t h e i r conclusions and judgments a r e n o t s u b j e c t t o c o l l a t e r a l a t t a c k except f o r fraud." The Court i n t h e same y e a r s t a t e d t h a t appeals c o u l d o n l y be made based on a1 l e g a t i o n s t h a t t h e Board had a r b i t r a r i l y o r c a p' r i c i o u s l y e x e r c i s e d i t s d i s c r e t i o n a r y powers o f v a l u a t i o n o r equaliz'ation. 9 I n 1928 t h e L e g i s l a t u r e enacted an appeals process from t h e S t a t e Board. The s t a t u t o r y procedure r e q u i r e d d i s s a t i s f i e d taxpayers t o pay t h e i r taxes under p r o t e s t by September 15, and f i l e reasons f o r o b j e c t i o n s t o t h e i r v a l u a t i o n s . The Superior had t o hear t h e cases ( w i t h o r w i t h o u t j u r y ) w i t h i n t e n days from i t s f i l i n g .



Courts



2.



The Counties' Role



As has been mentioned, t h e r o l e o f t h e c o u n t i e s was s u b s t a n t i a l l y t h e same a f t e r statehood as before. The S t a t e Tax Commission was c r e a t e d as a s u p e r i o r e n t i t y t o t h e counties b u t , by and l a r g e , t h e d u t i e s o f t h e c o u n t i e s were unchanged. Assessors were t o a s c e r t a i n between t h e f i r s t Monday i n January and t h e f i r s t day i n May t h e owner and value o f a l l p r o p e r t y s u b j e c t t o t a x a t i o n i n t h e county n o t otherwise valued by t h e commission. As an a i d t o t h e assessors, t h e new s t a t e s t a t u t e s c a r r i e d t h e t e r r i t o r i a l p r o v i s i o n t h a t r e q u i r e d taxpayers t o f i l e From these p r o p e r t y annual statements of p r o p e r t y values w i t h t h e as.sessors. l2 value statements and t h e assessors ' d i l i g e n t i n q u i r i e s throughout t h e county, t h e assessment r o l l was t o be compiled. The assessor would hen t u r n t h e r o l l over t o t h e county board of s u p e r v i s o r s by May 20 o f each y e a r . 1 5 A f t e r r e c e i v i n g t h e r o l l , t h e boards o f s u p e r v i s o r s would convene as t h e boards o f e q u a l i z a t i o n t o s i t from June 1 t o June 10. A t t h i s t i m e t h e boards would hear appeals from taxpayers and c o n s i d e r increases and decreases i n v a l u a t i o n s . I f increases were t o be made, t h e boards were t o n o t i f y t h e p r o p e r t y owners affected, and i n v i t e them t o appear b e f o r e t h e board d u r i n g i t s J u l y hearing. The boards would reconvene on t h e f i r s t Monday i n J u l y and f i n a l i z e t h e equal iz a t i o n s t h a t had been considered i n June. 14



P r i o r t o a code r e v i s i o n i n 1901, t h e s t a t u t e s provided no r i g h t o f appeal from t h e a c t i o n s o f t h e county boards o f e q u a l i z a t i o n . I n t h a t year, t h e T e r r i t o r i a l L e g i s l a t u r e provided f o r an appeals process which i s very s i m i l a r t o what p r e s e n t l y e x i s t s . To appeal t h e a c t i o n s o f t h e county boards, taxpayers had t o pay h e i r taxes under p r o t e s t and f i l e an appeal i n S u p e r i o r Court by September 15. 1g No appeals would be heard by t h e c o u r t unless t h e y were f i r s t appealed t o t h e county boards. The case had t o be heard by t h e c o u r t w i t h i n t e n days o f f i l i n g , w i t h o r without a jury. On o r b e f o r e t h e second Monday i n August, t h e State Board would r e t u r n a f i n a l l y equal i z e d assessment r o l l t o t h e county boards o f equal i z a t i o n . Accompanyi n g t h e r o l l would be a statement o f changes necessary t o be made as a r e s u l t of statewide e q u a l i z a t i o n and the s t a t e t a x r a t e . Taxes were then l e v i e d on o r before t h e t h i r d Monday i n August. 17 The o r i g i n a l 1913 code p r e s c r i b e d t h a t taxes were immediately due and payable and d e l i n q u e n t by t h e f i r s t Monday i n December. P a r t payments o f taxes t h a t were maqg a f t e r t h e d e l i n q u e n t d a t e c a r r i e d a 4% p e n a l t y and 10% i n t e r e s t p e r annum. By 1928, however, t h e code provided t h a t p r o p e r t y taxes c o u l d be p a i d i n two equal i n s t a l l m e n t s : t h e f i r s t due on t h e f i r s t Monday i n September and d e l i n q u e n t on t h e f i r s t Monday i n November and t h e second he4f due on t h e f i r s t Monday i n March and d e l i n q u e n t on t h e f i r s t Monday i n May.



I 1



I



IV.



E a r l y C l a s s i f i c a t i o n s o f Property



The Arizona C o n s t i t u t i o n f i r s t recognized i n 1912 t h e p o s s i b i l i t y of , c l a s s i f i c a t i o n o f p r o p e r t y f o r t a x purposes. A r t i c l e I X Section I reads i n part:



" A l l taxes s h a l l be u n i f o r m upon t h e same c l a s s o f p r o p e r t y w i t h i n t h e t e r r i t o r i a l l i m i t s o f t h e t e r r i t o r y l e v y i n g t h e tax."

H i s t o r i c a l l y , t h e L e g i s l a t u r e has used t h i s p r o v i s i o n t o c l a s s i f y property. Such c l a s s i f i c a t i o n s i n e a r l y days were n o t intended t o modify t h e t a x a t i o n burden. Rather, t h e c l a s s i f i c a t i o n s were g e n e r a l l y intended t o e i t h e r ease t h e a d m i n i s t r a t i v e problems o f c o l l e c t i o n o r t o assess p r o p e r t y i n such a way as t o more c l o s e l y r e f l e c t i t s t r u e market value. For example, i n 1913,statutory classes e x i s t e d f o r express companies, p r i v a t e c a r companies, banks, and general property. These four classes e x i s t e d i n t h a t f o r each t h e r e was a s p e c i f i c treatment f o r taxation.Express companies had t h e 6% gross proceeds t a x i n l i e u o f ad valorem taxes. P r i v a t e atewide c a r companies had an i n - l i e u s t a t e p r o p e r t y t a x u s i n g the average p r o p e r t y t a x r a t e . Banks were taxed on c a p i t a l stock u n t i l 1943. General p r o p e r t i e s were assessed and taxed under t h e general laws. I n a d d i t i o n t o these f o u r classes, some p r o p e r t i e s were exempted from t a x a t i o n .



B ti



I n 1951, a i r c a r r i e r s were t r e a t e d s p e c i f i c a l l y by t h e L e g i s l a t u r e i n a manner s i m i l a r t o p r i v a t e c a r companies. I n 1959, producing o i l and gas w e l l s were a l s o added as a class. O i l and gas we1 1 s were valued a t t h e previous y e a r ' s d o l l a r v a l u e o f p r o d u c t i o n w i t h t a x r a t e s a p p l i e d t o t h i s amount. While these s t a t u t o r y classes have e x i s t e d , i t would be d i f f i c u l t t o conclude t h a t t h e l e g i s l a t i v e i n t e n t was t o modify o r s t r u c t u r e t h e t a x burden. It appears t h a t these c l a s s i f i c a t i o n s were based on convenience and necessity. There have been attempts t o modify t h e t a x burden through c l a s s i f i c a t i o n . The f i r s t such attempt was contained i n t h e I n t a n g i b l e Property Tax Act o f 1933. The purpose o f t h e a c t was t o p r o v i d e a new method o f t a x i n g bank s t o c k and t o t a x a l l i n t a n g i b l e s i n t h e s t a t e . 21 The a c t e s t a b l i s h e d seven classes o f i n t a n g i b l e s w i t h d i f f e r e n t t a x r a t e s a p p l i e d t o each c l a s s . The i n t a n g i b l e s were t o be assessed a t t h e i r market value t o be determined t o a l a r g e e x t e n t by t h e Tax Comnission. 22 Almost immediately a f t e r i t s enactment, t h e Act was t e s t e d i n t h e c o u r t . I n S t a t e Tax commission v. Shattuck 44 A r i z . 379 (1934), t h e Supreme Court s t r u c k down t h e v a l i d i t y o f t h e Act.



Although t h e r e were many s i g n i f i c a n t p o i n t s o f law contained i n t h e c o u r t decision, two a r e o f prime i n t e r e s t here and t o t h e development of t h e p r o p e r t y t a x system. The c o u r t r u l e d t h a t c l a s s i f i c a t i o n s such as were contained i n t h e a c t were c o n s t i t u t i o n a l , as were d i f f e r e n t r a t e s o f t a x a t i o n f o r t h e d i f f e r e n t classes, so l o n g as t h e d i s t i n c t i o n between t h e classes was reasonable and n o t a r b i t r a r y . However, t h e c o u r t f e l t t h a t some of t h e classes were based on f a n c i f u l d i s t i n c t i o n s and were t h e r e f o r e n o t v a l i d . The c o u r t s t a t e d t h a t t h i s reason i n and o f i t s e l f was n o t cause t o s t r i k e down t h e v a l i d i t y o f t h e a c t , b u t t h a t t h e r e was a more serious f a u l t w i t h the act. The a c t had provided no o p p o r t u n i t y f o r taxpayers t o be heard as t o t h e amount o f t h e t a x before i t was f i n a l l y determined. T h i s omission o f due process i n a t a x i n g system was t h e basis o f t h e c o u r t s t r i k i n g down the a c t ' s v a l i d i t y . Since t h i s l e g i s l a t i o n t h e l e g i s l a t u r e has made no e f f o r t t o t a x i n t a n g i b l e s i n t h i s s t a t e . 23 However, The I n t a n g i b l e Tax Act o f 1933 i s very s i g n i f i c a n t ; p r i m a r i l y because t h e a c t was t h e f i r s t attempt by an Arizona L e g i s l a t u r e t o a l t e r t h e burden o f t a x a t i o n through a c l a s s i f i c a t i o n scheme. I n t h i s case, t h e c l a s s i f i c a t i o n was l i m i t e d t o a s p e c i f i c t y p e of property, i . e . , i n t a n g i b l e s , and t h e burden s h i f t i n g was accomplished through t a x rates, b u t t h e r a m i f i c a t i o n s o f t h e a c t i o n would be important t o t h e development o f t h e Arizona p r o p e r t y t a x system. I n 1950 t h e L e g i s l a t u r e t o o k i t s f i r s t successful step t o modify t h e t a x burden f o r a c l a s s o f p r o p e r t y by p r o v i d i n g a p r o p e r t y t a x i n c e n t i v e f o r commercial c a p i t a l investment. (Second Special Session, Chapter 9. ) The L e g i s l a t u r e d e f i n e d a manufactory as an establishment p r i n c i p a l l y engaged i n t h e f a b r i c a t i o n , p r o d u c t i o n and manufacture o f products, wares, and a r t i c l e s f o r use from raw o r prepared m a t e r i a l s , i m p a r t i n g t o such m a t e r i a l s new forms, qua1 i t i e s , p r o p e r t i e s and combinations. S p e c i f i c a l l y excluded from t h e d e f i n i t i o n o f a manufactory were businesses engaged i n : mining, smelting, quarrying, e t c . f u r n i s h i n g u t i l i t i e s t o consumers telephone o r t e l e g r a p h s e r v i c e p i p e l i n e operations pub1 i c a t i o n job p r i n t i n g o r advertising s l aughtering contracting For t h e businesses which were n o t excluded t h e 1950 Act provided t h a t machinery used i n t h e o p e r a t i o n and maintenance o f any manufactory would be assessed f o r t a x purposes a t 50% o f i t s book value. Book value was defiried as c o s t p l u s c a p i t a l i z e d i n s t a l l a t i o n , l e s s d e p r e c i a t i o n ( n o t t o exceed 20% i n any one year. ) I n no event was t h e equipmerlt t o be assessed a t l e s s than 10% o f c o s t p l u s c a p i t a l i z e d i n s t a l l a t i o n .



With t h i s a c t , the Legislature made i t s f i r s t departure from the scheme established in t e r r i t o r i a l days that assessed a l l property a t i t s f u l l cash value. However, as will be seen in the following section, t h i s was not the f i r s t time property was assessed a t l e s s than i t s f u l l cash value.



A1 though t h e s t a t u t e s had always p r e s c r i b e d t h a t p r o p e r t y be assessed a t i t s f u l l cash value, t h i s was n o t always t h e case i n Arizona. The f i r s t Tax Commission recognized t h a t assessments were a t a l e v e l somewhat below f u l l cash value, as d i d t h e L e g i s l a t u r e i n 1931 and 1947 when i t caused s t a t e w i d e r e v a l u a t i o n s t o be completed. As t i m e passed a f t e r t h e s e r e v a l u a t i o n s , p r o p e r t y would s l i p from t h e f u l l cash v a l u e l e v e l and t h e r e v a l u a t i o n s would have t o be repeated. The e f f e c t o f assessing p r o p e r t i e s a t l e s s t h a n f u l l cash value, e s p e c i a l l y w i t h o u t u t i l i z i n g a u n i f o r m percentage o f f u l l cash v a l u e was t o a l t e r t h e burden o f t a x a t i o n . As t i m e passed and t h e assessments became more d i s t o r t e d , t h e Tax Commission c o u l d do l i t t l e t o m a i n t a i n u n i f o r m i t y . Between 1957 and 1963 a s e r i e s o f events occurred t h a t marked j u s t how s e r i o u s t h e assessment problem had become. 1. L e g i s l a t i v e Recognition o f t h e Problem



I n 1957 t h e House o f Representatives formed a House Tax Study Committee t o study t h e t a x s t r u c t u r e of t h e s t a t e . I n i t s f i n a l r e p o r t t h e Committee stated:

"It has l o n g been recognized t h a t one o f t h e m a j o r problems of A r i z o n a ' s t a x s t r u c t u r e has been t h e l a c k o f u n i f o r m i t y i n assessment p r a c t i c e s as between c o u n t i e s , as t o classes o f p r o p e r t y w i t h i n t h e r e s p e c t i v e c o u n t i e s , and ds t o i n d i v i d u a l p a r c e l s of p r o p e r t i e s w i t h i n classes. " 24



During t h e hearings t h a t were conducted by t h e co~nmittee, several o p t i o n s f o r a l l e v i a t i n g t h e problem were examined. The S t a t e Tax Conimission appeared b e f o r e t h e Committee t o urge t h a t a r e v a l u a t i o n program t a k e p l a c e throughout t h e s t a t e . The Commission suggested t h a t i t c o u l d p e r f o r m t h e r e v a l u a t i o n , b u t would r e q u i r e an a p p r o p r i a t i o n o f $300,000 a y e a r f o r f i v e years. Suggestions were made by some committee members t h a t , i n s t e a d of a t t e m p t i n g a r e v a l u a t i o n , a s o l u t i o n c o u l d be found by u t i l i z i n g t h e concept o f e f f e c t i v e t a x r a t e s . Under t h i s p l a n a separate sctledule o f s t a t e t a x r a t e s would be used f o r each county. I f t h e b a s i c s t a t e t a x r a t e was $1 p e r $100 o f v a l u a t i o n , and 13 c o u n t i e s were assessing a t 40% o f v a l u e and t h e 1 4 t h county was assessing a t 20%, t h e r a t e i n t h e 1 4 t h county would be



$2



-



The Committee r e j e c t e d b o t h o f t h e s e a l t e r n a t i v e s and i n i t s f i n a l r e p o r t i n c l u d e d a t h i r d a l t e r n a t i v e : a proposal t h a t a r e a l e s t a t e t r a n s f e r t a x be adopted. The t r a n s f e r t a x would be accompanied by an a f f i d a v i t t h a t c o n t a i n e d t h e s e l l i n g p r i c e o f t h e p a r c e l and an a s s e s s o r ' s statement n o t i n g t h e v a l u a t i o n l e v e l o f t h e p a r c e l . The statements would then be forwarded t o t h e S t a t e Tax Commission. I n i t s r e p o r t t h e Committee s t a t e d :



Whi 1e your committee recognizes t h e need f o r ' p r o p e r t y r e v a l u a t i o n , i t i s n o t recommended a t t h i s time t h a t such a program be considered u n t i l t h e e f f e c t o f t h i s proposal ( t h e r e a l t y t r a n s a c t i o n t a x ) can be t e s t e d t o determine whether o r n o t a gradual r e v a l u a t i o n w i l l r e s u l t from pub1 i c d i s c l o s u r e o f t h e assessment i n e q u i t i e s which w i l l undoubtedly be high1 i g h t e d by these r e p o r t s . 25 (Parenthesis added) The r e p o r t f u r t h e r s t a t e d t h a t t h e r e p o r t s : should serve as an i n v a l u a b l e guide i n t h e f u t u r e f o r t h e Tax Commission a c t i n g i n i t s s t a t u t o r y c a p a c i t y as t h e S t a t e Board o f Equalization, which f u n c t i o n i t has f a i l e d t o perform p r i n c i p a l l y due t o t h e l a c k o f f a c i l i t i e s and i n f o r m a t i o n upon which t o base i t s a c t i o n s . (Emphasis added) The L e g i s l a t u r e d i d n o t enact t h e proposed r e a l e s t a t e t r a n s f e r t a x . (See f o o t n o t e 37)

2.



...



Extraneous E f f o r t s a t Change Maricopa County Taxpayers Association, Inc.



A.



I n an e f f o r t t o b r i n g about change, t h e Maricopa County Taxpayers Association, Inc. (MCTA) released a study i n 1959. I n t h e study t h e MCTA compared recent s e l l i n g p r i c e s o f p a r c e l s t o t h e assessment l e v e l s f o r p r o p e r t y taxes. The study concluded: t h e p i c t u r e o f assessment o f r e a l p r o p e r t y i n t h e S t a t e o f Arizona i s a potpourri o f p o l i t i c a l favoritism, a hodgepodge o f i n e f f i c i e n t e v a l u a t i o n and a crazy q u i l t o f unequal a ortionment o f t h e c o s t o f government and education.



...



...

I7



The MCTA study found extreme ranges o f assessed value t o niarket s e l l i n g p r i c e s i n t h e several counties. MCTA concluded t h a t t h e r e were two o p t i o n s open t o t h e s t a t e : 1 ) disengage i t s e l f from p r o p e r t y t a x a t i o n o r 2 ) order a statewide r e v a l u a t i o n . Both proposals were based on t h e c o n v i c t i o n t h a t u n i f o r m i t y must be brought t o t h e system and t h e i n e q u i t a b l e as~essmentl e v e l s were causing i n e q u i t a b l e t a x burdens.

B.



P r o p o s i t i o n 200



The widespread d e v i a t i o n s from t h e s t a t u t o r y d e f i n i t i o n of f u l l cdsh value r e s u l t e d i n an i n i t i a t i v e d r i v e f o r t h e 1962 General e l e c t i o n . I n t h a t year P r o p o s i t i o n 200 was p u t b e f o r e t h e people as an i n i t i a t i v e measure. The s h o r t t i t l e of t h e p r o p o s i t i o n was:



An i n i t i a t i v e measure r e l a t i n g t o taxation; creating the Arizona Board ofSAppraisal Standards f o r the purpose of directing a survey and reappraisal of property f o r taxation purposes and t o provide a continuing system of uniform appraisal and assessment practices; creating t h e off ice of d i r e c t o r of appraisal standards; prescribing the powers and d u t i e s of the county assessor, t h e s t a t e tax commission and t h e s t a t e l e g i s l a t u r e ; amending T i t l e 42, Chapter 2, A.R.S., by adding A r t i c l e 2.1, Sections 42-261. t o 42.261.11, inclusive and making an appropriation.



58



The reappraisal called f o r in t h e i n i t i a t i v e measure was t o be compl eted by December 31 , 1964 and was pub1 i c l y supported by United Homeowners Association of Arizona, Phoenix Association of Home Builders, Maricopa County Taxpayers Association, Tucson Chamber of Commerce, Phoenix Chamber of Commerce and t h e Arizona Council of Taxpayers. The proposal was soundly defeated a t t h e polls by a vote of 88,955 t o 164,241 with every county voting overwhelmingly "NO". Thi s proposal was t h e only one of f i v e p u t before t h e people in the election t h a t did not pass.

3.



The Courts and Southern Pacific Co. v. Cochise County



With t h e assessment practices being carried out as they were, i t appeared t h a t i t would only be a matter of time before t h e property tax and assessment system was challenged in court. In 1959 t h e Southern Pacific Company f i l e d s u i t t o (1 ) recover taxes paid under protest and ( 2 ) enjoin f u t u r e di scriminary assessment practices (southern Pacific Co. v. Cochise County 92 Ariz. 395, 1963). The brief f i l e d by the r a i l r o a d company pointed out t h a t t h e railroad was assessed by the Tax Commission. The railroad admitted t h a t i t was not being assessed a t 100% of f u l l cash value, but a t a level approaching 89%. However, the railroad claimed other properties in the s t a t e were assessed a t l e s s than 20% of f u l l cash value. Southern Pacific had asked the S t a t e Board of Equalization t o e i t h e r r a i s e other properties u p t o 89% or lower t h e railroad t o l e s s than 20% of f u l l cash value and t h e Board had denied t h e request. In 1963 the Supreme Court of Arizona ruled on the case. The court stated t h a t i f t h e a l l e g a t i o n s of d i f f e r e n t assessment levels were in f a c t t r u e , t h e lower courts must enjoin f u t u r e discriminatory actions of assessing and equalizing o f f i c i a l s . The court pointed out t h a t there was no l e g i s l a t i v e scheme f o r assessing property of d i f f e r e n t classes a t d i f f e r e n t l e v e l s of f u l l cash value. The court a l s o ruled, however, t h a t i t s decision was prospective and t h a t because the taxing subdivisions of t h e s t a t e had "predicated t h e i r f i s c a l a f f a i r s upon t h e systematic undervaluation practices" a refund of taxes would not and could not be made. This decision marked a s i g n i f i c a n t turning point f o r the s t a t e ' s valuation process. The property tax systern had come f u l l c i r c l e from the early days of statehood.



4.

A.



L e g i s l a t i v e Responses t o SPC v. Cochise County 1963 L e g i s l a t i o n



The L e g i s l a t u r e recognized t h e p o t e n t i a l d i s a s t e r t h a t l a y ahead and responded t o t h e d e c i s i o n o f t h e c o u r t by c r e a t i n g t h e D i v i s i o n of Appraisal and Assessment Standards w i t h i n t h e S t a t e Tax Commission. The D i v i s i o n was charged w i t h t h e r e s p o n s i b i l i t y o f conducting a statewide r e v a l u a t i o n of p r o p e r t y s i m i l a r t o what had been c a l l e d f o r i n P r o p o s i t i o n 200 of t h e previous year. 29 The l e g i s l a t i o n o f 1963 included t h e f o l lowing statement of l e g i s l a t i v e intent:

I t i s t h e sense o f t h i s l e g i s l a t u r e t h a t i n o r d e r t o assure t h a t t h e s t a t e ' s ad valorem t a x s t r u c t u r e i s uniform and equitable a revaluation o f a l l property i n the state i s t o be undertaken immediately. The l e g i s l a t u r e recognizes t h a t a r e v a l u a t i o n o f a l l p r o p e r t y w i t h i n t h e s t a t e w i l l necess a r i l y t a k e time. Moreover, we recognize t h a t t h e l e g a l i m n u n i t i e s from p o s s i b l e d i s r u p t i v e economic consequences r e s u l t i n g from t h e Southern P a c i f i c Company s u i t against t h e S t a t e and c o u n t i e s may p o s s i b l y e x p i r e i n t h e t a x a b l e year 1964. I t i s t h e r e f o r e proposed t o proceed i n t h e f o l l o w i n g manner: 1 ) Commence an immediate program of r e v a l u a t i o n as p r e s c r i b e d by t h e p r o v i s i o n s o f t h i s a r t i c l e and 2 ) reconvene t h e l e g i s l a t u r e i n s p e c i a l session p r i o r t o t h e end of calendar year 1963 f o r t h e purpose o f t a k i n g a c t i o n based on i n f o r m a t i o n gathered by t h e d i r e c t o r o f t h e d i v i s i o n o f a p p r a i s a l and assessment standards t o achieve u n i f o r m assessments w i t h i n classes and e q u a l i z a t i o n f o r t h e t a x year 1964. 30



The l e g i s l a t i o n provided t h a t a l l o f t h e powers and d u t i e s o f t h e Tax Commission i n regard t o p r o p e r t y taxes were t o be t r a n s f e r r e d t o t h e D i r e c t o r o f t h e D i v i s i o n o f Appraisal and Assessment Standards. The o n l y exception t o t h i s t r a n s f e r was t h a t t h e Commission continue t o s i t as t h e S t a t e Board o f Equalization. The D i r e c t o r o f t h e D i v i s i o n was a d d i t i o n a l l y charged by t h e l e g i s l a t i o n w i t h t h e d u t i e s o f determining: 1 ) t h e v a l u a t i o n s and assessment l e v e l s t h a t had e x i s t e d p r i o r t o 1963; and 2) t o proceed w i t h a r e v a l u a t i o n program centered around 26 classes created by t h e l e g i s l a t u r e f o r m a n i p u l a t i v e purposes. The r e v a l u a t i o n was t o be completed by D e c e n ~ b ~ r 1964 and be 31, reported t o the L e g i s l a t u r e . 31



C C



The L e g i s l a t u r e o r i g i n a l l y allowed two years f o r t h e completion o f t h e r e v a l u a t i o n and appropriated $1.5 m i l 1 i o n . Extensions were granted i n 1964 and again i n 1965 f i n a l l y s e t t i n g t h e completion date f o r A p r i l 1967. The r e v a l u a t i o n was f i n a l i z e d on May 1, 1967 a t a t o t a l c o s t of $6 m i l 1 i o n . One m i l 1i o n t h r e e hundred thousand (1,300,000) p a r c e l s were appraised by t h e D i v i s i o n .



The completed revaluation raised the valuation of the s t a t e from $2,238,806,714 i n 1966 t o $1 1,036,842,589 in 1967. This r e s u l t i l l u s t r a t e d t h a t t h e average assessment level in t h e s t a t e was approximately 20.3% of f u l l cash value although s t a t u t o r i l assessed value and f u l l cash value were supposed t o be synonymous. * 3



1



Selected r e s u l t s from t h e revaluation show the following percentages of f u l l cash value by c l a s s f o r property i n 1966 p r i o r t o the revaluation: TABLE I ASSESSED VALUATION A PERCENT OF FULL CASH S VALUE BY PROPERTY CLASS IN 1966--ARIZONA

PROPERTY CLASSES



STATE



MARICOPA COUNTY



SANTA CRUZ COCHISE COUNTY COUNTY



Residential Household Furniture Farm Lands Graz i ng Lands Livestock Producing Oil & Gas Producing Mines Standing Timber Railroads Telephone & Telegraph Gas & Electric U t i l . Pipe1 ines Water U t i l i t i e s Comm. & Ind. Manuf. Mach. & Equip. Other Lands Average Sodrce: Computed from data supplied by county assessors and Arizona Division of Appraisal and Assessment Standards 1967 Legislation



B.



In 1967 t h e Legislature engaged i t s e l f i n a preliminary overhaul of the property tax system while i t awaited the r e s u l t s of the revaluation. The Legislature was primarily concerned with t h e S t a t e ' s role i n t h e system and with strengthening t h e appeals process. The 1967 l e g i s l a t i o n removed t h e Tax Commission from a l l aspects of property taxation except the s e t t i n g of the s t a t e tax r a t e . The Division of Appraisal and Assessment Standards was redesiynated a s the Department of Propert Valuation and a new S t a t e Board of Property Tax Appeals was created. 33



The Department of Property Valuation was at1 independent s t a t e agency, charged w i t h a1 1 t h e d u t i e s and granted a1 1 t h e powers o f i t s two predecessor organizations. To strengthen t h e r o l e o f t h e department and t o increase s t a t e c o n t r o l , t h e f o u r t e e n county assessors were designated as deputy d i r e c t o r s o f t h e department. 34 To assure t h a t t h e massive r e v a l u a t i o n program being completed by t h e s t a t e would f i n d t h e way on t o t h e county assessment r o l l s , t h e l e g i s l a t i o n provided t h a t t h e assessors c o u l d n o t chang an assessment o r a v a l u a t i o n without f i r s t n o t i f y i n g t h e department. 55 The 1967 l e g i s l a t i o n a l s o added u t i l i t i e s t o t h e l i s t o f p r o p e r t i e s t o be assessed by t h e s t a t e . When t h e Tax Commission was f i n a l l y removed from t h e p r o p e r t y t a x area, t h e S t a t e Board o f Equal i z a t i o n was abol ished. The S t a t e Board of Property Tax Appeals which was created i n i t s place was composed o f t h r e e members appointed by t h e Governor. The Board was given a f u l l power t o e q u a l i z e t h e v a l u a t i o n o f a l l p r o p e r t y throughout t h e s t a t e . The new Board o f Appeals was t o a c t as t h e l a s t avenue o f an extended a d m i n i s t r a t i v e appeals process. The process c o u l d o f course culminate u l t i m a t e l y i n t h e courts, b u t t h e 1967 r e v i s i o n prescribed t h a t assessors must r u l e on a l l appeals b e f o r e t h e y could be taken t o t h e county boards of e q u a l i z a t i a n . From t h e county boards, taxpayers, assesso s and t h e department were a1 lowed t o c a r r y appeal s t o t h e S t a t e Board. * 56 The 1967 r e v i s i o n a l s o removed t h e requirement t h a t had been c a r r i e d from t e r r i t o r i a l days r e q u i r i n g p r o p e r t y owner t o f i l e a statement o f p r o p e r t y value w i t h t h e county assessors. * 38 A d d i t i o n a l l y , t h e p r e f e r e n t i a l treatment g i v e n machinery used i n manufactories was a1 20 repealed. 38

C, 1968 L e g i s l a t i o n



By t h e 1968 l e g i s l a t i v e session, t h e statewide vevaluation program was completed. The r e v a l u a t i o n process brought such concepts as market d a t a t o t h e s t a t u t e s and t h e d e f i n i t i o n o f f u l l cash value was changed t o : synonymous w i t h market value which means t h a t estimate o f value t h a t i s d e r i v e d a n n u a l l y by ube of standard a p p r a i s a l methods and techniques. 39 The D i r e c t o r of Property V a l u a t i o n was charged w i t h adopting: standard appraisal methods and techniques f o r use by t h e department and county assessors i n determining t h e v a l u a t i o n i n order t o perpetuate a c u r r e n t i n v e n t o r y o f property o f a l l p r o p e r t y s u b j e c t t o t a x a t i o n and t h e v a l u d t i o n thereof. 40



...



...



With t h e r e s u l t s o f t h e r e v a l u a t i o n f i n a l l y determined, t h e l e g i s l a t u r e was concerned as t o how these r e s u l t s should be i n t e g r a t e d i n t o t h e system. The e x i s t i n g i n f o r m a l c l a s s i f i c a t i o n had l e d t o a d i s t r i b u t i o n of burden t h a t t h e l e g i s l a t u r e was h e s i t a n t t o a l t e r . The l e g i s l a t u r e decided t h a t i t should adopt a formal c l a s s i f i c a t i o n scheme t h a t would l i m i t t h e amount



of burden shifting, have minimal impact on the fiscal stability of political subdivisions, and yet meet the Constitutional requirements of due process. The constraints of a classification system were summarized in a paper by Dr. Arlyn Larson, Legislative Fiscal Consultant, as follows:



I

I I I



1 ) . . a political constraint, ensuring that residential property taxes (at the 1966 level ) either remained stable or declined ,

2) a constitutional consideration to 1 imit the assessment ratio range that would be applied to property to a maximum of 2 to 1 , so that no class of property would have an assessment percentage greater than twice the lowest percentage, and

3) that the number of classe with different assessment ratios be as limited as possible. 47



.



Through testing various alternatives, it was found that the first and third considerations could be met, but to do so required abaridoning the second consideration. This was accepted and the legislature enacted a general property classification system. The system divided all property in the state into four classifications, each to be valued at full cash value. A separate assessment ratio was then applied to each classification to reach assessed valuation. The classes which were established and their assessment ratios were designated as follows: Class 1 a) b) c) d) e) flight property (ASSESSMENT RATIO PRESCRIBED 60%) private care companies railroad property used in the continuous operation of the line producing mines standing timber



I I



I I



Class 2 a) tel ephone and tel egraph companies (ASSESSMENT RATIO PRESCRIBED 40%) b) gas, water and electric utilities and pipe1 ines Class 3 comnercial or industrial property other than that included in Class 1, 2 or 4 including residential rental property (ASSESSMENT RATIO PRESCRIBED 25%) agricultural property and all other property not included in (ASSESSMENT RATIO PRESCRIBED 18%) Class 1 , 2 or 3



I



Class 4



In establishing the classification system the legislature again modified the appeals process, allowing taxpayers to appeal classification as well as valuation.. 5. Constitutional Test of the Classification Needless to say, the railroads as a group were not overly enthused



I



w i t h t h e f i n a l r e s u l t o f t h e s u i t o f 1959. A c l a s s i f i c a t i o n scheme w i t h r a i l r o a d s placed i n a c l a s s assessed a t t h e highest l e v e l o f a l l t h e classes was probably n o t q u i t e what was i n mind as a s o l u t i o n t o t h e problems o f t h e f i f t i e s . I n 1969 t h e Atchison, Topeka, and Santa Fe R a i l r o a d j o i n e d t h e Southern P a c i f i c Company i n a s u i t t o recover taxes p a i d under p r o t e s t i n 1968 and 1969. The s u i t a l l e g e d t h a t t h e c l a s s i f i c a t i o n system passed by t h e L e g i s l a t u r e i n 1968 denied due process, was an undue burden on i n t e r s t a t e commerce, and was beyond the power of t h e L e g i s l a t u r e . I n Apache County v. Atchison, Topeka and Santa Fe R a i l road Co. , (106 A r i z . 356) t h e Supreme Court denied t h e arguments o f t h e r a i l r o a d s and upheld t h e - s t a t e ' s ' r i g h t t o c l a s s i f y . The a c t i o n was appealed t o t h e United States Supreme Court; however, t h a t body refused t o hear t h e case. 6. L e g i s l a t i o n through 1973



I n t h e years between 1969 and 1973 no major r e v i s i o n s of s t a t u t e s were made i n t h e v a l u a t i o n , c l a s s i f i c a t i o n o r a d m i n i s t r a t i o n aspects of t h e p r o p e r t y t a x system. However, d u r i n g t h i s time, t h e appeal s process was broadened and r e f i n e d t o t h e p o i n t where i t i s today.



In 1969 r e v i s i o n s were made t h a t r e q u i r e d assessors t o determine by January 1 ( i n s t e a d o f A p r i l 1 ) t h e f u l l cash value l e v e l s o f p r o p e r t y assessed by them. Moving t h e d a t e backwards n i n e t y days allowed taxpayers more t i m e t o p r o t e s t f u l l cash value l e v e l s and more time f o r t h e assessors t o check f o r e r r o r s . J2

A l l appeals t h a t were t o be made through t h e a d m i n i s t r a t i v e appeals process were r e q u i r e d t o be f i l e d f i r s t w i t h t h e assessor. The l a s t day f o r taxpayers t o f i l e p r o t e s t s o f t h e i r v a l u a t i o n was set a t Marck 15, w i t h a l l r u l i n g s r e q u i r e d w i t h i n 30 days o f t h e f i l i n g o f t h e p r o t e s t . 43

I n a 1970 r e v i s i o n , t h e law provided t h a t assessors f i n a l i z e t h e i r r o l l and t u r n i t over t o t h e Board o f Supervisors by A p r i l 20. The Board, s i t t i n g as t h e Board o f Equalization,would hear appeals i n a May meeting and f i n a l l y determine v a l u a t i o n s i n t h e June meeting. Any d i s s a t i s f i e d taxpayers could then e i t h e r appeal t o t h e S t a t e Board o r t o t h e c o u r t s . Appeals t o t h e c o u r t s were allowed i n t h e 1968 p r o v i s i o n regardless o f whether o r n o t t h e taxpayers had exhausted o r even taken advantage o f t h e a d m i n i s t r a t i v e process. The f i l i n g dates f o r j u d i c i a l appeals were extended from September 15 t o November 1 i n 1969 and t h e r e q u i r e d time f o r t h e c o u r t t o hear t h e appeal was extended from t e n (10) t o n i n e t y (90) days. * 44



V I The MAS, the Homeowner's Rebate System, and the Department

of Revenue.



Between 1968 and 1973, several events were occurring simultaneously that eventually led t o the use of a mu1 t i p l e regression model for appraisal, the creation of a separate classification for owner occupied single family homes, and the beginning of the homeowner rebate program.



Three Year C y c l i c a l V a l u a t i o n and t h e Courts. The r e v a l u a t i o n mandated by t h e l e g i s l a t u r e i n 1963 was completed and entered on t h e t a x r o l l s f o r t h e 1968 t a x year. L e g i s l a t i o n enacted t h a t y e a r r e q u i r e d t h e s e v e r a l c o u n t y assessors t o a n n u a l l y update these v a l u a t i o n s t o m a i n t a i n a " c u r r e n t i n v e n t o r y " o f v a l u a t i o n i n the state. I n 1969 and 1970, Maricopa and Pima Counties s t r u g g l e d t o do t h i s annual updating. I n 1970,the Assessor's o f f i c e s concluded t h a t a t r i p l i n g i n budget a d i n personnel would be r e q u i r e d t o a n n u a l l y update a s s e s ~ m e n t s . ~ R I n seeking an avenue of r e 1 i e f , t h e D i r e c t o r of t h e Department o f P r o p e r t y V a l u a t i o n requested an o p i n i o n from t h e A t t o r n e y G e n e r a l ' s o f f i c e as t o whether a t h r e e year t r e n d of u p d a t i n g assessments would be l e g a l . The A t t o r n e y General f e l t t h a t t h i s would be p e r m i s s i b l e and t h e process s t a r t e d . I n 1971,one-third o f t h e p r o p e r t y i n Maricopa and Pima Counties r e v a l u e d . The design o f t h e procedure was t o update t h e values on one t h i r d o f t h e p r o p e r t y i n t h e c o u n t i e s each year, thus by t h e t h i r d year a l l p r o p e r t y would have been revalued. A group o f homeowners i n Pima County f i l e d s u i t over t h e t h r e e y e a r t r e n d i n g process, a1 l e g i n g t h a t t h e process was d e s ~ r i m i n ctto r y and denied those persons assessed i n t h e f i r s t year due process and equal p r o t e c t i o n . I n 1972, Judge R o y l s t o n o f t h e P ' a C o ~ ~ n t yu p e r i o r Court S r u l e d t h a t t h e process was u n c o n s t i t u t i o n a l .@ 'The ease ws immediately appealed b u t a d e c i s i o n was n o t t o come u n t i l 1975. Considering t h e events t h a t were t o f o l l o w i t i s i r o n i c t h a t t h e case \dould l a t e r be overturned (Dodson v. Bade I 1 1 A r i z . 578, 1975) ( H i l l o c k v . Bade I 1 1 A r i z . 585, 1975). The c o u r t r u l e d t h a t thi! three~kii---~n~~ t h e b e s t procedure t h a t c o u l d be implemented g i v e n t h e l i m i t e d resources available.



2.



The M u l t i p l e Regression A n a l y s i s Concept and t- MAS Model .--h eThe Department o f P r o p e r t y V a l u a t i o n had been m o n i t o r i n g t h e r e s u l t s o f t h e assessment updates generated by t h e assessors s i n c e 1960. Based on f i v e samples o f s i n g l e f a m i l y homes made i n Maricopa County i n 1971 and 1972, t h e Department concluded t h a t f u l l cash values were approximating 65 t o 75 p e r c e n t o f t h e s a l e s p r i c e s on I~omes. The Department was s t r i v i n g f o r a s t a t e w i d e average o f 88 per c e n t of t h e s a l e s p r i c e t o be synonomous w i t h f u l l cash value, b u t f e l t t h a t c o u n t i e s were d o i n g t h e b e s t j o b t h e y c o u l d 47 During t h i s t i m e p e r i o d , a l l assessments were inade u t i l i z i n g an a p p r a i s a l method founded on replacement c o s t l e s s d e p r e c i a t i o n , t h e so c a l l e d " c o s t " method. T h i s process i n v o l v e d a g r e a t d e a l o f manual computation and t h e r e f o r e was n e c e s s a r i l y burdensome i n terms of personnel requirements.



The Department began e x p l o r i n g o t h e r methods o f a p p r a i s a l and became very i n t e r e s t e d i n a concept c a l l e d m u l t i p l e r e g r e s s i o n a n a l y s i s (MRA). Simply p u t , MRA as i t i s a p p l i e d t o t h e a p p r a i s a l of p r o p e r t y i s a s t a t i s t i c a l t e c h n i q u e t h a t attempts t o e s t i m a t e t h e f u l l cash v a l u e o f a p r o p e r t y , based on t h e average s a l e s p r i c e of s i m i l a r p r o p e r t i e s , homes f o r example. I n o r d e r t o f u n c t i o n , MRA needs two s e t s of i n p u t data. The f i r s t s e t o f d a t a i s composed o f c h a r a c t e r i s t i c s and p r i c e s o f homes t h a t have r e c e n t l y s o l d i n t h e marketplace. By c h a r a c t e r i s t i c s , reference i s made t o such t h i n g s as number o f square f e e t , o v e r a l l qua1 i t y o f c o n s t r u c t i o n and m a t e r i a l s , r o o f type, number o f bathroom f i x t u r e s , presence o r absence o f a i r c o n d i t i o n i r l g and the l i k e . By s e l l i n g p r i c e , r e f e r e n c e i s made t o t h e p r i c e p a i d f o r homes i n arms l e n g t h t r a n s a c t i o n s . For example, home s a l e s between f a t h e r and son would n o t be i n c l u d e d . This d a t a would t h e n be analyzed so t h a t values c o u l d be assigned t o t h e v a r i o u s p r o p e r t y c h a r a c t e r i s t i c s and ranked i n t h e i r o r d e r o f i n f l u e n c e on p r i c e . T h i s process i s v e r y i n v o l v e d and r e q u i r e s access t o f a i r l y s o p h i s t i c a t e d computer equipment. The second group o f d a t a t o be c o l l e c t e d i s t h e c h a r a c t e r i s t i c s o f a l l t h e homes t h a t a r e t o be valued by t h e system. When these c h a r a c t e r i s t i c s a r e c o l l e c t e d , t h e v a r i o u s values determined from t h e f i r s t d a t a group a r e t h e n a p p l i e d and a market value i s p r e d i c t e d f o r each home a c c o r d i n g t o i t s c h a r a c t e r i s t i c s . The Department o f P r o p e r t y V a l u a t i o n f e l t t h a t t h e MRA type of a p p r a i s a l t e c h n i q u e c o u l d be used i n Arizona. The Departinent cont r a c t e d w i t h t h e CBM c o r p o r a t i o n and Mass A p p r a i s a l System (MAS) was developed f o r Arizona. A f t e r Judge R o y l s t o n r u l e d i n 1972 t h a t t h e t r e n d i n g procedures used i n Maricopa and Pima c o u n t i e s were u n c o n s t i t u t i o n a l , t h e Department of p r o p e r t y v a l u a t i o n b r o u g h t t h e MAS system forward. The MAS system w i t h i t s computerized techniques would a l l o w annual r e a p p r a i s a l o f homes. The MAS c o u l d n o t be a p p l i e d t o o t h e r t.ypes o f p r o p e r t y because o f a l a c k o f s a l e s data. O f t h e annual r e a l e s t a t e t r a n s a c t i o n s i n Arizona, 95 p e r c e n t were s i n g l e f a m i l y homes. The o t h e r 5 p e r cent, spread o v e r a l l types o f p r o p e r t y , would n o t be s u f f i c i e n t f o r use i n an MRA system. MAS v a l u a t i o n runs were made f o r t h e 1973 t a x y e a r . The values p r o duced by t h e system were g e n e r a l l y 25 p e r c e n t h i g h e r than t h e values produced by t h e county assessors. The assessors i n i t i a l l y b a l k e d a t t h e i d e a o f u s i n g such a system, b u t t h e Department ordered t h a t t h e MAS values be used, and t h e assessors, as d e p u t i e s o f t h e Department, compl ied.



3.



The Homeowners Rebate Program and Class 5 P r o p e r t y The i n i t i a l s i t u a t i o n of noncompliance b y c o u n t y assessors, and t h e f o l l o w i n g s i t u a t i o n o f a 25 p e r c e n t i n c r e a s e i n home values caused a g r e a t deal o f a l a r m i n t h e L e g i s l a t u r e . A J o i n t L e g i s l a t i v e Committee on V a l u a t i o n and T a x a t i o n was appointed e a r l y i n January o f 1973 t o h o l d h e a r i n g s on t h e s i t u a t i o n . I t appeared t o be t h e consensus of t h e Committee t h a t t h e MAS system was necessary, b u t something had t o be done about t h e i n c r e a s e i n values. Coincidentally, the f i r s t year t h a t the State received substantial sums o f money from t h e f e d e r a l government through t h e General Revenue Sharing Program was a l s o 1973. I t was then decided t h a t t h e Committee would recommend, and l a t e r t h e l e g i s l a t u r e enacted, a ho~rleowners p r ~ ~ p e r t a x r e b a t e u t i l i z i n g t h e revenue s h h r i t ~ gmonies. y I n 1973,$42 m i l l i o n was a p p r o p r i a t e d f o r t h i s purpose. The r e s u l t was a f l a t 25 p e r c e n t r e d u c t i o n i n a l l homeowner p r o p e r t y tclx b i l l s . I n o r d e r t o f a c i l i t a t e t h i s r e b a t e , i t was necessary fbr the l e g i s l a t u r e t o c r e a t e a s p e c i f i c c l a s s i f i c a t i o n o f p r o p e r t y composed of owner occupied s i n g l e f a m i l y homes. T h i s was done and a c l a s s 5 was created. T h i s c l a s s m a i n t a i n e d an 18 p e r c e n t assessment r a t i o . I n 1974,the l e g i s l a t u r e engaged i n a school r e f i n a r r c i n g sessiun t h a t r e s u l t e d , a t l e a s t i n t h e area o f p r o p e r t y t a x a t i o n , i n a l o w e r i n g of c l a s s 5 assessment r a t i o t o 15 p e r cent, a r a i s i n g o f the c l d s s 2 assessment r a t i o t o 50 p e r c e n t and c l a s s 3 t o 27 p r r \ : e i ~ t , and a revamping of t h e homeowners r e b a t e f o r m u l a so t h a t i t W ~ S based 011 SLIIUO~ I-inance i n f o r m a t i o n .



4.



- C r e a t i o-- of t h e D e p a- t m e n t o f ----The n r Revenue Dur-i ng t h e 1973 session, a n o t h e r s i g n i f i c a n t event occurred. The L e g i s l a t u r e v i r t u a l l y a b o l i s h e d t h e S t a t e Tax Commissioil. 1r1 i t s p l a c e was c r e a t e d t h e Department o f Revenue t o supervise a d t n i n i s t r a t i o n over p r o p e r t y , luxtrr'y, e s t a t e , sales, use, and iI-~iometaxes. The S t a t e Board o f P r o p e r t y Tax Appeals was redesignattad i n 1g73 as t h e S t a t e Board o f Tax Appeals, D i v i s i o n I. Other D i v i s i o n s were c r e a t e d t o handle appeals i n o t h e r types o f t a x m a t t e r s . The members o f t h e Tax Cominission were a1 lowed t r serve o u t t h e i r c terms, t h e l a s t o f which w i l l end on December 31, 1978. The o n l y f u n c t i o n s t i l l l e f t t o t h e Commission artd t h e one cornir~issioners t i l l i n o f f i c e i s t h e p r e p a r a t i o n o f c i t y and county budget forms and t o hear and r u l e on appeals by j u r i s d i c t i o n s t o exceed t h e i r adopted budgets i n emergency s i t u a t i o n s . I n t h e most r e c e n t s e s s i o n o f t h e l e g i s l a t u r e ( 1 s t Regular Session of t h e 33rd L e g i s l a t u r e ) , l e g i s l a t i o n was enact,ed t h a t t o some e x t e n t m o d i f i e d t h e p r o p e r t y t a x system.



The f i r s t change (Laws 77 Ch. 108) r e q u i r e d t h a t t h e D i r e c t o r of t h e Department o f Revenue a u t h o r i z e c o u n t i e s t o perform o r c o n t r a c t f o r t h e i r own p r o p e r t y t a x r e 1 a t e d d a t a processing. Up u n t i l t h i s r e v i s i o n , t h e Department o f Revenue was r e q u i r e d t o perform a l l p r o p e r t y t a x r e l a t e d d a t a p r o c e s s i n g f o r a1 1 c o u n t i e s . Exceptions t o t h i s r u l e had been p r o v i d e d t o c o u n t i e s t h a t had d a t a processing c a p a b i l i t i e s a t t h e time t h e 1963-1967 r e v a l u a t i o n was completed. The second change, and more i m p o r t a n t i n impact on t h e system was contained i n SB 1102 (Laws 77 Ch. 152 Sec. 22). T h i s l e g i s l a t i o n r e q u i r e s t h a t assessed v a l u a t i o n s , as f i n a l l y equalized, be reduced by d i v i d i n g b y 1.05 f o r t h e 1978 t a x y e a r and by d i v i d i n g b y 1.1 f o r t h e 1979 t a x y e a r . T h i s l e g i s l a t i o n was i n t e n d e d t o remove i n f l a t i o n a r y growth from assessed v a l u a t i o n increases. The impact on t h e system from t h i s change has n o t y e t been f e l t .



b



f7=



1



The C u r r e n t System/Timetable o f t h e Process. T h i s s e c t i o n w i l l a t t e m p t t o g i v e an overview o f t h e c u r r e n t p r o p e r t y t a x a t i o n system i n Arizona. F o l l o w i n g w i l l be a p r e s e n t a t i o n of t h e t i m e t a b l e f o r t h e process. 1. The C u r r e n t System



C



A.



Valuation



The Arizona C o n s t i t u t i o n p r e s c r i b e s t h a t a1 1 p r o p e r t y i n t h e s t a t e i s s u b j e c t t o t a x a t i o n unless exempted by t h e laws of t h e U n i t e d S t a t e s o r by t h e C o n s t i t u t i o n . C u r r e n t l y i n Arizona, exemptions a r e p r o v i d e d for: Federal , s t a t e , county and m u n i c i p a l p r o p e r t y . P u b l i c debts o f A r i z o n a o r i t s p o l i t i c a l s u b d i v i s i o n s . Pub1ic 1ib r a r i e s , c o l leges, school houses and o t h e r n o n p r o f i t educational buildings. H o s p i t a l s , asylums, poor houses and o t h e r c h r i t a b l e i n s t i t u t i o n s f o r the r e l i e f o f t h e i n d i g e n t o r a f f l i c t e d . N o n p r o f i t p r o p e r t y of a g r i c u l t u r a l s o c i e t i e s Churches and b u i l d i n g s operated on a nonprofit. b a s i s used f o r r e l i g i o u s worship. N o n p r o f i t p o r t i o n s o f cemeteries and graveyaids. P r o p e r t y o f r e s i d e n t widows, veterans, me~ilber of the r-evenui! s marine s e r v i c e , mi 1 it a r y nurses p r o v i d e d t h a t veterans served a t l e a s t 60 days i n t i m e o f war and were res iden1.s p r i n r t o September 1 , 1945. Veterans must meet v a r y i n!j assessed v a l u a t i o n c r i t e r i a and widows must meet income c r i t e r i a as wtl I t o q u a l i f y f o r exemption. A l l exemptions i n t h i s c a t e g o r y a r e f o r a maximum o f $2,000. Observatories and t h e i r p r o p e r t y n o t h e l d f o r p r o f i t , . P r o p e r t y of a h e a l t h c a r e i n s t i t u t i o n s e r v i n g t h e e l d e l - l y o r handicapped on a n o n p r o f i t b a s i s , h P r o p e r t y used f o r subsidized, n o n p r o f i t h ~ ~ngt f~o rs t ~ e e l d e r l y o r handicapped, P r o p e r t y o f c h a r i t a b l e i n s t i t u t i o n s i n which any income from t h e p r o p e r t y i s used f o r r e l i e f o f t h e i n d i g e n t o r a f f l i c t e d . I n v e n t o r i e s o f r e t a i l e r s , w h o l e s a l e r s o r mancrfacturers, A l l household goods owned by t h e user t h e r e o f and used s o l e l y f o r noncommercial purposes.



.



However, t h e r e i s some p r o p e r t y i n t h e s t a t e t h a t i s s u l ~ j e c tto t a x a t i o n t h a t t h e L e g i s l a t u r e has decided n o t t o t a x , l e a s e h o l d i n t e r e s t s and i n t a n g i b l e , f o r example.



Of t h e p r o p e r t y t h a t i s taxed i n Arizona, a l l o f such p r o p e r t y i s valued a t i t s f u l l cash value. F u l l cash v a l u e f o r p r o p e r t y t a x purposes i s synonymous w i t h market value, which means t h a t e s t i m a t e of v a l u e t h a t i s d e r i v e d a n n u a l l y by t h e use of standard a p p r a i s a l methods and techniques. A l l t a x a b l e p r o p e r t y i n Arizona i s p l a c e d i n t o a c l a s s i f i c a t i o n schedule t o determine i t s assessed v a l u a t i o n . The p a r t i c u l a r c l a s s i n which a p a r c e l of p r o p e r t y i s p l a c e d i s determined by t h e use t o which t h a t p r o p e r t y i s p u t . There a r e c u r r e n t l y seven classes of p r o p e r t y : 1. Class one: ( a ) F l i g h t p r o p e r t y valued under t h e p r o v i s i o n s o f Sections 42-701 through 42-705. ( b ) A l l r e a l and personal p r o p e r t y used i n t h e o p e r a t i o n of p r i v a t e c a r companies valued under t h e p r o v i s i o n s o f Sections 42-741 t h r o u g h 42-748. ( c ) A l l r e a l and personal p r o p e r t y o f r a i l r o a d companies used i n t h e continuous o p e r a t i o n o f a r a i l r o a d valued under t h e p r o v i s i o n s of S e c t i o n s 42-761 t h r o u g h 42-766. ( d ) Producing mines and m i n i n g c l a i m s , t h e personal p r o p e r t y used thereon, t h e improvements t h e r e t o and t h e lni 11 s and s m e l t e r s operated i n c o n j u n c t i o n t h e r e w i t h valued under t h e p r o v i s i o n s o f S e c t i o n 42-124. ( e ) Standing t i m b e r . 2. Class two: ( a ) A l l r e a l and personal p r o p e r t y used i n t h e o p e r a t i o n o f telephone and t e l e g r a p h companies valued under t h e p r o v i s i o n s o f S e c t i o n s 42-791 through 42-795. ( b ) A l l p r o p e r t y , b o t h r e a l and personal, o f gas, water and e l e c t r i c u t i l i t y companies and p i p e l i n e companies valued under t h e p r o v i s i o n s of S e c t i o n 42-124.01.

3.



Class t h r e e : A l l r e a l and personal p r o p e r t y devoted t o any com~nurcial o r i n d u s t r i a l use o t h e r t h a n p r o p e r t y i n c l u d e d i n c l a s s e s one, t w o , f o u r , f i v e ( b ) , and s i x .



4.



Class f o u r : ( a ) A l l r e a l p r o p e r t y and t h e improvements t o such p r o p e r t y , i f any, used f o r a g r i c u l t u r a l purposes, and a l l o t h e r r e a l p r o p e l - t y and t h e improvements t o such p r o p e r t y , if any, n o t i n c l ~ r d ~i d n c l a s s e s one, two, t h r e e , f i v e o r s i x ,



( b ) All personal property used for agricultural purposes, and a l l



other personal property not included in classes one, two, three, f i v e or six.

5.



Class five: ( a ) All real property and the improvements to such property and personal property used f o r residential purposes and not otherwise included in classes one, two, three, four, six or seven. ( b ) A1 1 real property and improvements to such property and personal property used for the operation of residential housing f a c i l i t i e s and structured to the care or housing not used o r held for ~ r o f i t of handicapped persons or persons sixty-two years o f age or older. All real property and improvements thereto and personal property used for the operation of 1icensed residential care institutions o r licensed nursing care i n s t i t u t i o n s which provide medical services, nursing services or health related services and a r e structured to the care or housing of handicapped persons or persons sixty-two years of age or older. Nothing in t h i s subdivision shall be construed to 1imi t el igi bi 1i ty for ;In exemption pursuant to Section 42-271.



6.



Class s i x : All real and personal property and improvemenis t o such (~roper~ty not included i n classes one, two, three, four 0 1 % f i v e , tt-~al-i s devoted to use as leased or rented property solely for rcsiclential purposes.



7.



Class seven: tlistoric property as defined in Section 42-139.



Each separate class of property then has a percentage factor tti:~twhen multiplied by the property's f u l l cash value yields the assesced valuation of the property. The percentage factors applied are: Class one: sixty per cent of i t s f u l l cash value. Class two: f i f t y per cent of i t s f u l l cash value. Class three: twenty-seven per cent of i t s f u l l cash value Class four: eighteen per cent of i t s f u l l cash value Class five: f i f t e e n per cent of i t s f u l l cash value Class six: twenty-seven per cent of i t s f u l l cash va'lue for* the tax years 1976 and 1977 and twenty-three per cent of i t s f u l l cash value for the tax year 1978 and twenty-one p?t* cent of i t s f u l l cash value for each tax year thereafter. Class seven: eight per cent of f u l l cash value.



However, producing o i l and gas w e l l s do n o t have a percentage f a c t o r a p p l i e d and a r e taxed based on t h e d o l l a r v a l u e o f p r o d u c t i o n . P r i v a t e c a r companies, which have a gross proceeds t a x l e v i e d i n l i e u of p r o p e r t y taxes, a l s o do n o t have a percentage f a c t o r a p p l i e d . A f t e r t h e assessed v a l u a t i o n o f p r o p e r t y has been determined, t h e d o l l a r amount o f assessed v a l u a t i o n i s d i v i d e d by one hundred (100) and t h e tax r a t e i s applied t o the r e s u l t i n g quotient. The p r o p e r t y t a x i s unique i n t h a t s e v e r a l j u r i s d i c t i o n s u t i l i z e t h e same base t o r a i s e revenues. The s t a t e , t h e c o u n t i e s , t h e s e v e r a l i n c o r p o r a t e d c i t i e s and towns, school d i s t r i c t s , tiospi t a l d i s t r i c t s , f l o o d d i s t r i c t s , s p e c i a l improvement d i s t r i c t s and nulner.ous o t h e r p o l i t i c a l j u r i s d i c t i o n s a l l u t i l i z e t h e p r o p e r t y t a x t o r a i s e revenues. Throughout t h e p r o p e r t y t a x system, t h e taxpayers have a r i g h t t o be heard, in, r e l a t i o n t o c l a s s i f i c a t i o n and v a l u a t i o n as w e l l as i n budget a d o p t i o n h e a r i n g s f o r htose j u r i s d i c t i o n s l e v y i n g t h e p r o p e r t y t a x . 6. Administration



The p r o p e r t y t a x system i s a d m i n i s t e r e d on a two t i e r system i n Arizona. The Department o f Revenue through t h e D i v i s i o n o f P r o p e r t y and Special Taxes i s charged w i t h t h e o v e r a l l s u p e r v i s i o n o f t h e sybtcrn. As p a r t of t h i s s u p e r v i s i o n , t h e D i r e c t o r o f t h e Department ado,) t s "standard a p p r a i s a l methods and techniques f o r use by thr! d e p a r t ~ ~ ~ eand cotlnty rit assessors i n deterrnining t h e v a l u a t i o n o f p r o p e r t y . . . " The Department i s a d d i t i o n a l l y charged w i t h t h e v d l u a t i o n o f a l l producing mines, r a i l r o a d s , u t i l i t i e s , f l i g h t p r o p e r t i e s , p r i v a t e c a r and express companies, telephone and t e l e g r a p h p r o p e r t i e s . These " c e n t r a l l y assessed" p r o p e r t i e s t h e n have t h e i I- L o t a l v a l lat ti on apport i o n e d by t h e Department t o t h e s e v e r a l t a x i n g j u r i s d i c t i o n s i n which t h e i r properties l i e . The county assessors, who a r e designated by law as debuty d i r e c t o r s of t h e Department o f Revenue, v a l u e a l l o t h e r pr0pert.y i n t h e s t a t e t h a t i s taxed. I n a d d i t i o n t o t h e v a l u a t i o n and c l a s s i f i c ~ l t i o no f l o c a l l y assessed p r o p e r t y , county assessors a r e a l s o t h e f i r s t avenue of appeal f o r taxpayers complaining o f t h e i r v t ~ul a t i o n s . A f t e r appeals t o county assessors, taxpayers [nay t a k e appeals t o t h e county boards of s u p e r v i s o r s ( s i t t i n g as t h e county board o f e q u a l i z a t i o n ) , t o t h e S t a t e Board o f Tax Appeals o r , as a l d s t r e s o r t , t o the courts.



C



I n -- ___ summary, t h e Arizona p r o p e r t y t a x system p r o v i d e s f o r : . --- -. -- "

I-a_____ys____ I,lllllllll"i I -



-



*



-.s +Y



-,



1.



t h e i d e n t i f i c a t i o n o f p r o p e r t y s u b j e c t t o t a x a t i o n (and necessari l y p r o v i d e s f o r exemptions) the valuation o f property subject t o taxation t h e c l a s s i f i c a t i o n o f such p r o p e r t y a c c o r d i n g t o i t s use an o p p o r t u n i t y f o r taxpayer appeal, b o t h adlninistr a t i v e and j u d i c i a l , as t o v a l u a t i o n o r c l a s s i f i c a t i o n an e q u a l i z i n g process t o assure t h a t sirnilat. pr011er.ties w i t h i n classes, w i t h i n c o u n t i e s , and between c o u n t i e s i s valued s i m i l a r l y and e q u i t a b l y a l e v y i n g process a p a r t payment and c o l l e c t i o n process.



2.



3.

4.

5.



6.



7.

2.



Timetable o f t h e Process Tl1et.e i s rro )reed t o ~ r r ~ p l ~ a s ti h e c o m p l e x i t y o f this y'..t.ein. z This s e c t i o n w i l l a t t e m p t t o c u t through t h e c u r n l ~ l e x ~ as much ty as p o s s i b l e t o t k t h e reader through tlre annual p r r ~ i , . ? r I y a r t w i tli a b a s i c understdnding o f how arid when c y c l e and l e a v e p r o p e r t y taxes a r e determined. The focus o f t h e d i s c u s s i o n i s t h e t y p i c a l y e s i d e n t i d l o r comn~erc i a 1 taxpayer whose p r o p e r t y i s valued and assessed b y t h e c o ~ r n t y assessor. Omitted from t h i s d i s c u s s i o n i s t h e treatment o f 1~1i-ge i n d u s t r i a l e n t e r p r i s e s , 1 ike mines and r a i l roads, as t h e r e i s a separate t a x i n g t i m e t a b l e f o r the~il. A l s o om i t t e d from t h i s s e c t i o n w i l l be t h e v a r i a n c e s caused by t h e t a x r e d u c t i o n schcmc a n n u a l l y considered by t h e L e g i s l a t u r e . T h i s s e c t i o n w i l l be d i v i d e d i n t o two p a r t s , t h e f i r s t c o n c e r n ~ r l w i t h t h e annual p r o p e r t y t a x c y c l e and t h e second conct:~fling t h e tax appeals process. The d i s c u s s i o n w i l l u t i l i z e dates to e x p l a i n t h e system i n a c h r o n o l o y i c a l f a s h i o n .



1.



The Annual- o p e r t y Tax Cycle - Pr P r o p e r t y v a l u a t i o n i s supervised by t h e Department o f Revenue. The department adopts standard a p p r a i s a l methods and prepares guide1 i n e s t o keep a c u r r e n t i n v e n t o r y o f a1 1 p r o p e r t y i n t h e s t a t e and i t s v a l u e (42-123 and 42-123.01 ARS). Every change i n v a l u a t i o n o r assessment must be r e p o r t e d t o t h e department (42-1 26 ARS) . P r o p e r t y valued f o r t h e f i r s t time must be approved b y t h e department (42-127 ARS). The county assessor may demand i n f o r m a t i o n from t h e taxpayer who must respond w i t h a c o r r e c t 1 i s t of p r o p e r t y w i t h i n 10 days. An a d d i t i o n a l source o f v a l ~ l a t i o ni n f o r m a t i o n i s t h e a f f i d a v i t o f l e g a l v a l u e (42-1612 ARS). I f t h e county assessor f a i l s i n h i s d u t i e s , t h e S t a t e Board o f Tax Appeals may o r d e r t h e Department o f Reveriue t o make a new e v a l u a t i o n of p r o p e r t y i n a c e r t a i n geographic area o r t a x i n g c l a s s i f i c a t i o n (42-245.02 ARS) . November 30 The county assessor i d e n t i f i e s a1 1 p r o p e r t y i n the c o u t ~ t ys u b j e c t t o t a x a t i o n (42-221 ARS)



.



January 1 The county assessor determines t h e owner and f u l l cash value of a l l t a x a b l e p r o p e r t y i n t h e county (42-221 ARS). March 1 Once t h e county assessor has i n i t i a l l y determined t h e \ ~ a l ~ ~ a t ti o n o be used f o r t h e r o l l s , he has u n t i l March 1 t o n o t i f y any taxpayet- whose p r o b e r t y v a l u a t i o n i s t o be i n c r e a s e d o r c l d s s i f i c a t i o n ~ h a r ~ g ef do m r thl: p a s t y e a r . T h i s means t h a t t h e assessor has t o make a t l e d s t a t e n t a t i v e c l a s s i f i c a t i o n o f p r o p e r t y by !,larch 1. By t h i s d a t e such a taxpayer must be n o t i f i e d o f t h e proposed v a l u a t i o n increase o r c l d s s i f i c a t i o n change, a l t h o u g h f r o m January 1 t o March 10 any t a x payer may i n q u i r e as t o h i s v a l u a t i o n (42-221 A R S ) . A p r i l 20 The county assessor must have t h e assessment r o l l prepared arld d e l i v e r e d t o t h e County Board o f S u p e r v i s o r s (42-239 ARS) . The r o l l mus L i n c l u d e assessed v a l u a t i o n ( t h e p r o p e r percentage, hased on c l a s s i f i c a t i o n , a p p l i e d t o f u l l cash v a l u e (42-227 ARS)) and any cl~angrlover t h e p r e v i o u s y e a r must be r e p o r t e d t o t h e department f o r i t s approval (42-126 ARS). i The Board o f Supervisors keeps t h e r o l l f o r pub1 i(:n s p e c t i o n and g i v e s p u b l i c n o t i c e o f t h e meeting of t h e County Board o f Lcjual r i d t i o n on t h e f i r s t Monday i n May (42-239 and 42-241 ARS).



I I



May 1-7 The County Board o f E q u a l i z a t i o n meets i n May t o c o n s i d e r r a i s e s and increases i n v a l u a t i o n s and makes a t e n t a t i v e d e c i s i o n (42-241 ARS). A word about t h e e q u a l i z a t i o n f u n c t i o n as distinguished from an appeal i s i n o r d e r . I n an appeal, t h e i n d i v i d u a l taxpayer i s heard as t o why t h e assessing o f f i c e r was wrong. I n an e c ~ c ~ a l i z a t i o n h e t, e n t i r e assessment r o l l i s examined by an independrnt body and changes a r e made as a second guess on t h e a s s e s s o r ' s jurtgnlent. E q u a l i z a t i o n i s a process designed t o i n s u r e u n i f o r m i t y and f a i r n e s s t o a l l t a x payers. Even though t h e r e i s publ i c n o t i c e and publ i c p a r t i c i p a t i o n a t t h e meeting and p r o p e r t y may be e q u a l i z e d on an i n d i v i d u a l b a s i s a t t h e r e q u e s t o f t h e taxpayer, t h e p u b l i c p a r t i c i p a t i o n i s n o t necessary t o t h e e q u a l i z a t i o n f u n c t i o n . I n t h i s respect,it i s more l i k e v a l u a t i o n and assessment r a t h e r than an appeal and i s p r o p e r l y t r e a t e d here. May 27 - June 2 June 1-7 June 8-14 The County Board o f E q u a l i z a t i o n cannot i n c r e a s e dny v a l u a t i o n unless i t sends n o t i c e t o t h e taxpayer a t l e a s t f i v e days b e f o r e the f i r s t Monday i n June (42-242 ARS) on which day i t f i n a l i z e s i t s e q u a l i z a t i o n (42-241 ARS). I f t h e board f a i l s t o f i n i s h i t s busitress, i t may reiliain i n session u n t i l n o t l a t e r t h a n t h e second Mor~day i n June (42-243 ARS). I f t h e Board o f E q u a l i z a t i o n d i s c c i v c r ~ p r o p e r t y o m i t t e d from t h e r o l l , i t can r e q u i r e t h e assessor t o v a l u e i t and p l a c e i t on t t h e r o l l , b u t i f t h e assessor i s absent f~.olnt h e 111cc: i n g , t h e board may value t h e p r o p e r t y and submit t h e va ltlc t o t h Uepdr1.1nent o f ~ Revenue f o r i t s approval (42-244 ARS). J u l y 15 Before the State f u n c t i o n (42-143 f o r any i n c r e a s e t h e f i r s t Monday J u l y 16-22 The s t a t e board mus t examine and compare va 1 ua t i ons between and w i t h i n c o d n t i e s and between and w i t h i n c l a s s i f i c a t i o n s o t p r o p e r t y i n t h e s t a t e no l a t e r than t h e f i r s t Monday a f t e r J u l y 15. The board must use guide1 i n e s e s t a b l i s h e d by t h e Department o f Revenue and e q u a l i z e a t f u l l cash v a l u e (42-143A ARS). I n a d d i t i o n t o t h e general e q u a l i z a t i o n f u n c t i o n , t h e S t a t e Board can r u l e on i n d i v i d u a l appeals, f o r which a p u b l i c h e a r i n g must be h e l d and f i v e days' n o t i c e must be g i v e n t o t h e p r o p e r t y owner no l a t e r t h a n J u l y 20 (42-144 ARS). Board o f Tax Appeals can bey i n it f t ? q u a l i z a t i o n ARS) i t must g i v e t e n days' i l o t i c e a ~ l dtiold a h e a r i n g i n v a l u a t i o n due t o a general e q u a l i z a t i o n , on o r before a f t e r J u l y 15 (42-143A ARS, 42-142B ARS).



J u l y 25 The S t a t e Board o f Tax Appeals must have completed i t s e q u a l i z a t i o n and h e l d a l l necessary hearings b y J u l y 25 when i t i s r e q u i r e d t o transnii t i t s changes t o t h e Board o f Supervisors (42-145 ARS). August 1-7 By t h e f i r s t Monday i n August, t h e County Board o f E q u ~ilz a t i n n must make an a b s t r a c t of t h e r o l l by t a x i n g d i s t r i c t o f t h e p r o p e r t y s u b j e c t t o v a l u a t i o n by t h e assessor and n o t i f y the Board of Superv i s o r s , t h e S t a t e Board o f Tax Appeals and t h e Department o f Revenue (42-248 ARS).



By t h e second Monday i n August, t h e J o i n t L e g i s l a t i v e l'ax Comnii t t e e t r a n s m i t s t h e s t a t e p r o p e r t y t a x r a t e t o t h e Board o f Supervisors (42-108 ARS). On t h e second Monday i n A u ~ u s ~h,e Department of t Revenue l e v i e s t h e s t a t e p r o p e r t y t a x a t t h e r a t e s e t by t h e J o i n t L e g i s l a t i v e Tax Committee (42-108.01 ARS).



By t h e t h i r d Monday i n August, t h e c o u n t i e s , c i t i e s , and tcjwris f i x , l e v y and assess t h e amount o f taxes and t a x I-dte f o r t h e i r purposes (42-304 ARS).



Scp Lembt?r 1-28

The Board o f Supervisors t h e n prepares t h e assessment anri tax t-011 (42-309 ARS) . The t i r s t one-ha1 f o f taxes a r e due and llayahle on September I, unless t h e r e i s a p r o p e r t y t a x r e d u c t i b n a p p ~ . o p r i a t i o n (42-342 ARS). The county t r e a s u r e r i s commanded t o c o l l e c t t h e taxes from t h e persons named i n t h e r o l l when t h e r o l l i s d e i i v e r e d t o tiim by I h e f i r s t Monday i n September (42-310 ARS). Upon rz( r : i p t d f the r o l l , t h e t r e a s u r e r must pub1 i s h a n o t i c e o f t h e "due" and " d e l i n q u e n t " h dates f o r payment o f taxes (42-342 ARS). The n o t i c e nus 1 be p ~ ~i sb le d each week f o r t h r e e more weeks (42-342 ARS). I n t h e case o f a l e g i s l a t i v e p r o p e r t y t a x r e d u c t i o n , t h e r o l l need n o t be & l i v e r e d and t h e n o t i c e s need n o t be p u b l i s h e d u n t i l October a t the shine r e s p e c t i v e days (42-372 ARS)



.



Should t h e county t r e a s u r e r f i n d p r o p e r t y o m i t t e d f r o m t h e t a x r o l l , he 1 i s t s i t and t h e assessor must v a l u e i t w i t h i n 10 days and seek t h e approval o f t h e Department o f Revenue (42-343 ARS).



October 1 November 1 March 1 May 1



I f t h e l e g i s l a t u r e made an a p p r o p r i a t i o n f o r p r o p e r t y t a x t h e f i r s t o n e - h a l f o f taxes a r e n o t due u n t i l October 1. t h e f i r s t one-ha1 f of taxes a r e d e l inquent a f t e r f ive p.m. The second o n e - h a l f of taxes a r e due and payable on March d e l i n q u e n t a f t e r f i v e p.m. May 1 (42-342 ARS).



reduction, I n any case, of ~ o v e m b e r1. 1 and become



T h i s completes t h e "annual" t a x i n g c y c l e which can l a s t l o n g e r than e i g l l teen months. Also o f n o t e i s a c h a r t e r c i t y can p r o v i d e CI system o f a:;bessment, l e v y and c o l l e c t i o n o f t h e i r own p r o p e r t y taxes e n t i r e l y i n d e l ~ e n d e n to f s t a t e law (42-481 ARS). 2. The Tax--Appeal s Process Taxpayer Hearings and Appeals. A t t h e v a r i o u s stages o f t h e t a x i n g cycle, d i s p u t e s a r i s e between any cornbi na t i o n o f t h e persons i n v o l ved : t h e taxpayet*, t lie dc.sessor, t h e Board u f E q u a l i z a t i o n , t h e Department o f ke3~enue,or Ihe S t d t e Board o f Tax Appeals. A system o f h e a r i n g s , reviews and appeals has been s e t lip r,li t h i n the a d m i n i s t r a t i v e agencies t o r e s o l v e ri isputes dbout g the v a l u a t i o n and c l a s s i f i c a t i o n o f pt.operty. Th83 L ~ i i i i ~ l(lfthese appeals i s designed t o s e t t l e as many q u e s t i o n s as p ; l 5 s i l 1 l e about t h e t a x r o l l b e f o r e t h e t a x i s due and payable. There i s a l s o appeal t o t h e c o u r t systern b u t t h i s w i l l n o t g c n e r - a l l y e f f e ~ tu chdtlgc i n t h e r o l l b e l o r e t h e t a x i s due. I n t h i s discussion, an iltteri~ptwi I 1 be made t o f o l l o w t h e annual t a x c y c l e s e t f o r t h i n P a r t i b u t due t o t h e many h e a r i n g and r e v i e w procedures a f f o r d e d v a r i o u s pe\?scbt\s and agencies,each procedure w i l l be s e t f o r t h s e p a r a t e l y . 1. Taxpayer v. ---Assessor -



A.



The f i r s t o p p o r t u n i t y f o r an appeal ( b y n e c e s s i t y t h e term "appeal" i s used l o o s e l y t o d e s c r i b e a v a r i e t y o f procedures tn s e t t l e d i s p u t e s , r a n g i n g from v e r y i n f o r m a l t o q u a s i - j u d i c i a l and j u t l i r . i a 1 hearings and d e c i s i o n s ) i s a f t e r t h e c o u n t y assessor t e n t a t i v e l y values p r o p e r t y on January 1 f o r placement on t h e r o l l . The taxpayer may he n o t i f i e d o f an i n c r e a s e i n v a l u a t i o n o r change i n r , l a s s i f i ~ a t i o tbt:fore March 1 ~ o r lie may i n q u i r e o f t h e assessor as t o h i s v a l u a t i t ~ nbetween January 1 and March 10. I n any case, he has u n t i l March 15 t o p e t i t i o n t h e ir assessor t o change an improper v a l u a t i o n , The a s s ~ ~ s s o s d i r e c t e d t o subn~i any necessary c o r r e c t i o n t o t h e Department o f Revenue f o r i t s t approval w i t h i n f i f t e e n days a f t e r t h e f i l i n g o f the p e t i t i o n if he f i n d s any p a r t i c ~ l l a ri n t h e m a t t e r complained of t n bc erroneo~rs. I t i s n o t c l e a r what t h i s r e q u i r e m e n t a c t u a l l y dnes, csper i a l l y i n view of t h e f a c t t h a t t h e assessor can h o l d i n f o r m a l h c a r ~ r ~ q s n o t even and r u l e on a p e t i t i o n u n t i l t h i r t y days a f t e r i t i s f i l e d (42-221 ARS).



I t has been h e l d i n Burns v. H e r b e r g e r 1 7 AZ APP 426, 1972, t h a t t h e assessor d i d n o t have t o n o t i f y t h e Department o f Revenue o f a change i n v a l u a t i o n by t h i s appeal procedure u n t i l the l a s t day t h a t t h e assessor had t o r u l e , which a t t h e time, was a l s o t h e day he had t o d e l i v e r t h e completed r o l l t o t h e Board o f Supervisors.



Ift h e assessor denies t h e p e t i t i o n , he must m a i l a n o t i c e of t h e grounds t o t h e p e t i t i o n e r on t h e d a t e o f d e n i a l (42-4221 ARS) .

I t i s v e r y i m p o r t a n t t h a t t h e t a x p a y e r p e t i t i o n t h e assessor, f o r if he f a i l s t o , he cannot t h e r e a f t e r complain t o t h e County Board of E q u a l i z a t i o n o r t h e S t a t e Board o f Tax Appeals about t h e assessor's v a l u a t i o n (42-221 ARS). T h i s would n o t p r o h i b i t an appeal t o t h e s u p e r i o r c o u r t . T h i s appeal can be taken before Nov3mbe1- 1 s t whether o r n o t an appeal was taken t o t h e assessor, t h e County B o d t ~ Iu f Equali z a t i o n o r t h e S t a t e Board o f Tax Appedls (42-246 ARS). The c o u r t has one hundred e i g h t y days t o hear t h e appeal, b u t t h e r e i s no t i m e l i m i t on r e n d e r i n g a judgment (42-152 ARS). One d e s i r i n g t o appeal t o t h e c o u r t s must be prepared t o pay a t 1e a s t t h e f i r s t one-ha1 f of h i s taxes by t h e d e l i n q u e n t d a t e o f November 1, f o r an appeal w i 11 be dismissed u n l e s s taxes a r e p a i d under p r o t e s t b e f o r e they becor~~e d e l i n q u e n t and a r e c e i p t f o r payment i s f i l e d w i t h t h e c o u r t w i t h i n f o r t y - f i v e ddys (42-151 ARS). Appeal from t h e judgment o f t h e super i o r c o u r t may be taken as p r o v i d e d i n t h e r u l e s o f c i v i l procedure (42-1 52 ARS) .



P



Ift h e taxpayer wishes t o c o n t i n u e appeals i n t h e a d n ~ i n i t r a t i v e s channel, he has f i f t e e n days t o appeal t h e asses so^^'^ d e c i s i o n t o t h e County Board o f E q u a l i z a t i o n (42-241 - 0 1 ARS) . A h e a r i n g must be h e l d w i t h i n twenty days (42-241 ARS) and t h e bcldrd miist grSanto r r e f u s e t h e p e t i t i o n i n whole o r i n p a r t w i t h i n t e n days o f t i l e heari n g (42-241 .O1 ARS). The d e c i s i o n o f t h e board may be appedled t o t h e s u p e r i o r c o u r t by November 1 i n t h e manner j u s t d e s c r i b e d (42-245 ARS) o r an appeal may be taken from t h e v a l u a t i o n o r c l a s s i f i c a t i o n s e t b y t h e Board o f E q u a l i z a t i o n by f i l i i l g a p e t i t i o n w i t h t h e S t a t e Board o f Tax Appeals w i t h i n twenty days o f t h e m a i l i n g o f t h e d e c i s i o n . A time l i m i t f o r a h e a r i n g i s n o t p r e s c r i b e d , b u t a w r i t t e n d e c i s i o n must be rendered w i t h i n t h i r t y days a f t e r t h e h e a r i n g i s h e l d and i n any case no l a t e r t h a n J u l y 25 (42-241.01 and 42-245 ARS). The d e c i s i o n o f t h e s t a t e board may be f u r t h e r appealed t o t h e s u p e r i o r c o u r t , b u t o n l y i n t h e manner p r e v i o u s l y d e s c r i b e d . 2.



Taxpayer v . Board o f E q u a l i z a t i o n



If a taxpayer has no q u a r r e l w i t h t h e assessor, he mtiy f i r i d t h a t t h e County Board o f E q u a l i z a t i o n i s p l a n n i n g t o r a i s e h i s p r o p e r t y vdluat i o n . A n o t i c e o f t h i s proposal must be s e n t f i v e days p r i o r t o t h e June meeting between t h e f i r s t and second Monday t I \ e taxpayer has an o p p o r t u n i t y t o be heard. The d e c i s i o n o f t h e board i s f i n a l , unless p r o p e r l y appealed (42-241 ARS) .



The taxpayer can appeal t h e d e c i s i o n o f t h e County Board of Equal iz d t i o n t o t h e s u p e r i o r c o u r t o f t h e S t a t e Board o f Tax Appeals i n t h e same manner as s e t f o r t h i n 1. The appeal t o t h e S t a t e Dear-d of Tax Appeals niust be taken w i t h i n twenty days. The s t a t e board rnust h o l d a h e a r i n g and render a d e c i s i o n w i t h i n t h i r t y days o f t h e hearing, b u t i n no evt.nt l a t e r t h a n J u l y 25 (42-245 ARS). Appeal frorn t h e county board may a l s o be takeit t o the s u p e r i o r c o u r t by November 1 (42-245 ARS). A l s o t h i s i s t h e method t o appeal t h e d e c i s i o n o f t h e s t a t e board, as discussed e a r l i e r (42-146 ARS)



.



3.



Ti



i 9 g e r v. S t a t e Board of l a x Appeals.



t, The t a x p a y e r ' s f i r s t c o m p l a i n t may come when he f i n d s o ~ ~ by p u b l i c n o t i c e , t h a t t h e S t a t e Board o f Tax Appeals i s c o r ~ s i d c r i r ~ay general e q u a l i z a t i o n which w i l l i n c r e a s e h i s v a l u a t i o n . This n o t i c e c o u l d come as l a t e as on o r p r i o r t o t h e f i r s t Monday a f t e r J u l y 15 and a h e a r i n g would be h e l d no sooner t h a n J u l y 25 (42-143 ARS). 11uly 25 i s t h e day t h a t t h e s t a t e board must t r a n s m i t i t s changes i n t h e r o l l s t o t h e boards of s u p e r v i s o r s (42-145 ARS). A t any time, t h e S t a t e Board o f Tax Appeals c o u l d ~ q u ai lz e prSoperty values on a r ~i n d i v i d u a l b a s i s . To a f f e c t t l l e c u r r e n t t d x r o l l , t h i s would have t o be done by J u l y 25 and o n l y a f t e r a f i v e day n o t i c e by l e t t e r and I l e a r i n g i f values a r e t o be increased (42-144 ARS). An appeal of t h e v a l u a t i o n o r c l a s s i f i c a t i o n as drtermi,1?3 by t h e S t a t e Board of Tax Appeals i s t o t h e supet i o r cour'l I3.i lloveniber 1 . T h i s procedure as s e t f o r t h i n 1 must be f o l l o w e d (42-1-15, 42-15'1 and 42-152 ARS).



4.



Tdxpayer v. Taxing System ---- - -----



To now, t h e o n l y i s s u e s p e r m i t t e d t o be r a i s e d by t l ~ ed ~ n ~ ~ r i s t r a t i v e appeals and appeals t o t h e s u p e r i o r c o u r t have been t o v a l u a t i o n o r c l a s s i f i c a t i o n o t p r o p e r t y f o r t a x i n g ptrt,poses. Iftl,c taxpayer' wants t o r a i s e any o t h e r issue, e.g. t h e c o n s t i t u t i o n a l i t y o f t i l e t a x i n g system, he must f i l e an o r i g i n a l a c t i o n i n t h e s u p e r i o r court. t o r e c o v e r a t a x i1l e g a l l y c o l l e c t e d . The val i d i t y ur m o u n t of t h e t a x cannot he t e s t e d if taxes l e v i e d and assessed a r e n o t p a i d . There can be no i n j u n c t i o n a g a i n s t t h e c o l l e c t i o n of a t a x which has been l e v i e d o r a g a i n s t e x t e n d i n g an assesslnent upon t h e t a x r o l l (42-204 ARS)



.



B.



Aqpeals o f - A d m i n i s t r a t i v e O f f i c e s



A n i n i t i a l v a l u a t i o n o r a change i n v a l u a t i o n by L l i i - assessor. must be suhn~i t e d t o t h e Department o f Revenue f o r approval . 1he department t has twenty days i n which t o disapprove. The assessot niay appeal t o The t h e S t a t e Board of Tax Appeals w i t h i n t e n ddys a f t e r d i sapproval s t a t e board must t h e n h o l d a h e a r i n g w i t h i n twenty days and t a l e on t h e appeal w i t h i n t e n days a f t e r t h e h e d r i n g (42- 126 a i d 42-127 A R S ) .



.



The Department o f Revenue may c o n t e s t any proposed v a l u a t i o n o r c l a s s i f i c a t i o n o r any proposed change i n v a l u a t i o n s o r c l a s s i f i c a t i o n s b e f o r e t h e County Board o f E q u a l i z a t i o n (42-123 and 42-123.01 ARS). I f t h e r e i s a r e d u c t i o n i n v a l u a t i o n by t h e County Board o f E q u a l i z a t i o n , t h e assessor o r t h e department iliay appeal t o t h e S t a t e Board o f Tax appeals i n t h e same nianntlr as a taxpayer would (42-245 ARS). The department may a l s o c o n t e s t any v a l u a t i o n o r c l a s s i f i c a t i o n b e f o r e t h e S t a t e Board o f Tax Appeals (42-123 and 42-123.01 ARS). The department may appeal any d e c i s i o n o f t h e County Board o f E q u a l i z a t i o n o r t h e S t a t e Board o f Tax Appeals t o t h e s u p e r i o r c o u r t by November 1 (42-123 and 42-1 23.01 ARS).

C.



Summary The appeals process i s designed t o s e t t l e questions o f v a l u a t i o n o r c l a s s i f i c a t i o n by t h e end o f J u l y , so t h e r o l l s may be f i n a l i z e d and t h e t a x r a t e determined. There a r e s e v e r a l a d m i n i s t r a t i v e avenues open t o b o t h t h e taxpayer and t h e assessing a u t h o r i t i e s . Appeal t o t h e c o u r t s i s a l o n g e r process r e q u i r i n g payment o f d i s p u t e d taxes. ~ An understanding o f t 3 annual assessment c y c l e i s necessary t o p e r c e i v e t h e source o f t a x d i s p u t e s and t h e time frame r e q u i r e d t o r e s o l v e d i s p u t e s so :hat t h e p r o p e r t a x i s l e v i e d and o n l y t h a t which i s due i s col1e;ted.



VIII.

1.



FOOTNOTES AND APPENDIX Second B i e n n i a l Report o f t h e S t a t e Tax Commission of Arizona



P. 6.



2.



A t t h e t i m e of statehood, t h e o n l y o t h e r t a x t h a t generated s t a t e revenues was t h e i n h e r i t a n c e t a x . T h i s t a x was n o t a d m i n i s t e r e d by t h e Tax Commission, b u t r a t h e r by t h e S t a t e T r e a s u r e r ' s and S t a t e A u d i t o r ' s o f f i c e s . P. 5

P. 10



3.



F i r s t Tax Commission Report F i r s t Tax Commission Report



4. 5.



I t i s i n t e r e s t i n g t o n o t e t h a t a f t e r t h e dramatic i n c r e a s e i n v a l u a t i o n o f t h e 1912 assessment, s e v e r a l c o u n t i e s m a i n t a i n e d c o n s t a n t o r near c o n s t a n t t a x r a t e s , i n c r e a s i n g t h e i r l e v i e s s i ~ j n i f i c a n t l y . I n 1913, t h e S t a t e Tax Commission t h e r e f o r e recommended, and t h e L e g i s l a t u r e enacted, a 10 p e r c e n t l i m i t a t i o n on l e v y i n c r e a s e s by c o u n t i e s , c i t i e s and towns. T h i s law was based on a Washington S t a t e l a w and i s s t i l l i r ~ f f e c t , w i t h e m o d i f i c a t i o n , i n Arizona. (See 2nd B i e n n i a l Report o f t h e SLate Tax Commission of Arizona, P. 18) h To judge how t h e l e g i s l a t i v e changes o f 191 3 i l ~ ~ p a c t etd e p r o p e r t y t a x i system, and t o o b t a i n a f e e l i n g f o r t h e a t t i t u d e o f the Col~in~rssionn i t s o e a r l y days, below i s a d e s ~ r i p t i o n f t h e 1913 assessment a s c o n t a i n e d i n t h e ~c?-n_ddJa~-_CoEjIss&nnReport, 1914, p.p. 10-12 1913 ASSESSMENT "The Co~nnii s i o n opened t h e season o f 1913 by drl n r d ~ : i *t o d l 1 s assessors t o assess a l l p r o p e r t y a t i t s f u l l cash v a l ~ r e , T h i s o r d e r was f o l l o w e d by another t o assess a l 'I s t o c k s u f niei-cha~~ilu is a t tile f u l l amount o f t h e i r i n v e n t o r i e s and s t i l l another fi..\ing t h e minimum v a l u a t i o n on a l l c l a s s e s o f l i v e s t o c k . The assessr,l8s c a r r i e d o u t t h e o r d e r s , b o t h i n l e t t e r dnd i n s p i r i t . T11ert~ was no r e s t e i t h e r n i g h t o r day fr-om t h e i s s u d n i e o f these order:, u n t i l t h e books were f i n a l l y c l o s e d , I t i s a m a t t e r o f geology t h d t Arizona i s a l a n d o f e x t i n c t volcanos, h u t t h e Tax Cornn1i~:;ion was soon aware nf t h e f a c t t h a t geology was wrong. "Telegrams, l e t t e r s , r e s o l u t i o n s and d e l e g a t i o n s poured i n on t h e Commission. Town counci 1 s , boards o f s u p e r v i s o r s , t)oards of t r a d e , chambers o f conllnerce and a s s o c i a t i o n s met and r a s o l v e d t h a t i t was a l l wrong. Newspapers poured o u t t h e i r v i a l s v i t u p e r d t i o n f i g u r a t i v e l y showing t h e i r t e e t h and shaking t h e i r f i s t s and s a y i n g i r r d i r e c t E trgl i s h , "Weal1 g e t you! damn you. " Corpol a1:ions pawed t h e a i r . Classes t o r e t h e i r h a i r , i n d i v i d u a l s f r o t h e d a l t h c mouth a t ~ da l l s e n t s u p p l i c a t i o n s t o t h e t h r o n e o f cjrdce o r t?lse\.rt\ere, f o r t h e l o v e of Mike t o he1 p them o r t h e y were r u i n e d .



"The pounding became so hard t h a t t h e Coinmission and Assc!bsors soon found themselves working and s t a n d i n g t o g e t h e r ds d u n i t and a c t u a l l y ' p u t t i n g t h e t h i n g over. ' <



"Many t h i n g s t h a t b e f o r e were considered i m p o s s i b l e were demonstrated t o be p o s s i b l e . G r a d u a l l y t h e turmoi 1 subsided and taxpayers g e n e r a l l y r e a l i z e d t h a t a s p l e n d i d assessment had been made. The t e n p e r c e n t l i m i t served g r e a t l y t o smooth t h e way. "When t h e a b s t r a c t s o f t h e r o l l s came i n i t was found t h a t t h e assessed v a l u a t i o n o f t h e s t a t e had been increased from $140,000,000.00 t o $369,000,000.00. Under t h e u n r e s t r i c t e d powers granted i t , t h e Tax Commission was now t o g i v e t h e s t a t e t h e f i r s t genuine equal iz a t i o n i t e v e r had. Before i t t o o k up t h i s arduous t a s k i t c a l l e d i n t o an i n q u i s i t o r i a l conference a l l t h e county assessors, t h e county boards o f e q u a l i z a t i o n and t h e c l e r k s o f s a i d boards, who brought w i t h them a l l t h e assessment r o l l s . " T h i s conference l a s t e d a week, w i t h two n i g h t sessions. Every county was represented w i t h a f u l l d e l e g a t i o n k e e n l y a l e r t t o t h e f a c t t h a t h i s t o r y , as w e l l as t a x a t i o n was i n t h e making. The o f f i c e r s of every county and t h e Tax Commission i t s e l f , underwent a g r u e l 1 i n g d i r e c t and cross-examination as t o methods and d i l i g e n c e used i n assessing a l l c l a s s e s o r p r o p e r t y . The presence o f t h e t a x r o l l s prevented d i g r e s s i o n from t h e f a c t s and a l s o determined t h e a p p l i c a t i o n of s t a t e d e f f o r t s and methods. The r e s u l L was remarkable. I t proved t o be a c o l l e g e on t a x a t i o n . Local p r e j u d i c e s and misunderstandings t h a t had e x i s t e d f o r y e a r s were wiped o u t i n one s h o r t week, and a c t u a l f a c t s t h a t needed c o r r e c t i o n t o o k t h e i r p l a c e . Nearly a l l were e l a t e d over t h e r e s i l l t and those n o t , wisiled t h e y were. All were g l a d t h e y came and subsequently t h e y understood and were g e n e r a l l y s a t i s f i e d w i t h t h e e q u a l i z a t i o n made by t h e Coiii~r~ission h~icauscthey, themselves, had brought o u t t h e f a c t s t h e e q u a l i z a t i o n was bdsed upon. "The Commission, immediately a f t e r t h e conference, s a t as a S t a t e Board o f E q u a l i z a t i o n . I t went i n t o c l a s s e s i n the s t a t e , c l a s s e s i n t h e c o u n t i e s and c l a s s e s i n t h e c i t i e s , aild considered i n d i v i d u a l s anywhere. No c o u n t i e s o r c i t i e s as d whole were affected. The r e s u l t o f t h e e q u a l i z a t i o n was a n e t r a i s e o f o v e r s i x ~ i l i l l i o n d o l l a r s , which t o g e t h e r w i t h t h e subsequent assessmenl o f t h e p r i v a t e c a r 1 ines made a t o t a l va1 u a t i o n o f $377,000,000.00 and a r a i s e of 267 p e r c e n t o v e r t h e 1912 assessment, and 385 p e r c e n t over the 1q11 assessment. "Two s u i t s were f i l e d i n Santa Cruz county a g d i n s t t h e assessments t h a t y e a r . One by t h e W o r l d ' s F a i r mine, i n which the dssessment was sustained, and t h e o t h e r by J. E. Wise, i n which t h e number o f c a t t l e was reduced. "A1 though r a i l r o a d s , w i t h t h e p r i v a t e c a r l i r i e s and t h e niines were t h e o n l y c l a s s e s t h a t bore an i n c r e a s e of t h e t a x burdens, ther-e was a m a t e r i a l r e a d j u s t m e n t w i t h i n a l l c l a s s e s .



"The f o l l o w i n g t a b l e shows t h e percentages o f s t a t e taxes p a i d by e a ~ h l a s s of p r o p e r t y f o r t h e y e a r s i n d i c a t e d : c Lands and Improvements. Mines and Machinery Town and C i t y L o t s and Improvements L i v e Stock. . . . . . . . . . . . . Railroads . . . . . . . . . . . . . Telephone and Telegraph P r o p e r t y Water Works, S t r e e t Railways, Gas, L i g h t , Power and I c e P l a n t s . . . A l l Other P r o p e r t y



. . . . . . . . 14.2 . . . . . . . . . . 19.3 . . 26.5 . . 7.8 . . 19.1 ... .. . . . . . . . . . . 13.1



1911



1912 12.7 31.7 18.2 G.5 20.0



-- 1913



10.7 37 . ? 15.2 5.9 22.2



.5

1.4



10.9



6.9



"Frorn t h e above t a b l e , i t w i l l be seen t h a t i n 1911 t l ~ e a i l r o a d s r and mines p a i d 38.4 p e r c e n t o f t h e s t a t e taxes and i n 1913 they p a i d 59.4 p e r c e n t o f t h e s t a t e taxes." Paragraph 4849 Revised S t a t u t e s o f Arizona 19 Paragraph 3068 Revised Code of Arizona 1928 Paragraph 7 3 - 2 0 3 A F i zona Code Annotated 1939 S e c t i o n 42-201 Arizona Revised S t a t u t e s 1956 Laws 1961 3 r d SS'- Ch. 20-section 2 Arizona Con:Jt,ilut~on, A r t i c l e I X , S e c t i o n 1 The r e v a l lrcl t i o n s wet-e a u t h o r i z e d by Laws 31 , Chapter- 103, 1-av~s 1(1!\7, Chapter 1 8 and 1 . d ~ ~ 1 1963, Chapter 43, and t h e case Was Souther11 P a c i f ic; Co. v. Cochisc -- - County, 92 A r i z . 395 1963 --- -- . . Stat Court, 30 A r i z . a t 624 (1926) ----e v . Superior -. S e c t i o n 3065 - Revised Code of A r i z o n a 1928 -Exemptions were p r o v i d e d i n t h e C o n s t i t u t i o n and t h e 1313 Codtt f o r ; 1 ) pub1 i c b u i l d i n g s , debts and e d u c a t i o n a l f a c i l i t i e s 2 ) n o n p r o f i t h o s p i t a l s , poor houses, asylums dnd o t h e r c h d r i t a b l e institutions 3 ) r e 1i g i o u s p r o p e r t i e s 4 ) nonprof it cemeteries 5 ) p r o p e r t i e s of widows n o t i n excess o f $1,000 if t o t a l p r o p e r t y (See S e c t i o n 4846 Revised owned was n o t i n excess o f $2,000 S t a ----- s o f Arizona 1913 tute -By 1939 t h e exemptions t h a t were s p e c i f i e d were expanllcd and i n ~lurtcd: .



1 ) an expanded widows' c r e d i t 2) a v e t e r a n s ' exemption, and 3 ) an exemption f o r o b s e r v a t n r i e s (See 73-201, A r i z o n a Code Annotated 1939)



A d d i t i o n a l l y , t h e s t a t u t e s exempted shares o f c o r p o r a t i o n stock. rhis exemption d i d n o t a p p l y t o banking c o r p o r a t i o n s o r o t h e r c o r p o r a t i o n s t h a t "used money t o make money," as these a s s e t s were taxed. (See 73-204, Arizona Code Annotated 1939 and S e c t i o n 4850, Revised S t a t u t e s of Arizona 1913) For a f u r t h e r d i s c u s s i o n o f t h e h i s t o r y o f exeniptions, see t h e Appendix, attachment # l . 12. The S t a t e S t a t u t e s s i g n i f i c a n t l y reduced t h e p e n a l t y f o r f a l s e answers on t h e p r o p e r t y statement o v e r what tiad e x i s t e d i n t e r r i t o r i a l days. The p e n a l t y was reduced from assessment o f f i v e times t h e f u l l cash value t o assessment a t t w i c e t h e f u l l cash v a l u e . The statements were s t i l l f i l e d under penal t y o f p e r j u r y b u t u n l ik e t h e t e r r i t o r i a l code, b o u n t i e s were no l o n g e r p a i d f o r i n f o r m a t i o n on t a x evaders. See Sections4860 and 4877, 1913 Code Sections 3074 and 3085,-1928 Code Sections 73-402 and 73-414, 1939 Code Sections 42-221 and 42-239, 1956 Code See S e c t i o n Section Section Section 4880 e t seq, 1913 Code 3086 e t seq, 1928 Code 73-41 5 e t seq, 1939 Code 42-241 e t seq, 1956 Code



13.



14.



15.



-See Cochise County v. Copper Queen Corisolidated M i n i n g C_!!!np?t!y (1903) 8 A r i z . 221 and compare t h e p r e s e n t 42-245, ~ r i .-f i- - a --seg S-tatutes, Revi w i t h S e c t i o n 4887, 1913 Code-.



16.



The 1901 S t a t u t e s p r o v i d e d t h a t taxpayers c o u l d appeal t t i e d c c i s i o n s of t h e county boards. The s t a t u t e s (and r e v i s i o n s u n t i l 1967) ( l i d n o t a l l o w t t ~ e r i g h t o f appeal t o be extended t o assessors d i s s a t i s f i e d w i t h t h e a c t i o n s of t h e board. Elohave County v. Stephens (191 5 ) 17 A r i z . 165 See S e c t i o n Section Section Section 4844, 1913 Code 3100, 1928 Code 73-505, 1939 Code 42-304, A r i zona Revi sed S t a t u e :



17.



18. 19.



S e c t i o n 4895, 1913 Code S e c t i o n 3110, 1928 Code. S e c t i o n 73-701, 1937 Code. A . R . S . 42-34?. Ch. 7 3 ) , t h e L e g i s l a t u r e d e l e t e d t h e f o u r p e r c e n t I n 1954 (Laws p e n a l t y on d e l i n q u e n t taxes.

--a .-



=,



20.



Federal s t a t u t e s had l o n g p r o h i b i t e d t h e t a x i n g o f t o banks, so as e a r l y as 1912 t h e Arizona S t a t u t e s o f bank s t o c k (Sec. 4850, 1913 Code). T h i s system u n t i l 1943 when p e r m i s s i v e f e d e r a l l e g i s l a t i o n was t h e t a x a t i o n o f bank-owned r e a l p r o p e r t y (see Laws 1939 Code, and 42-901, A.R.S. e t seq)



r e a l p r o p e r t y belonging provided for the taxation o f t a x a t ~ o nextended enacted t h a t a l l o w e d f o r 43, Ch. 11 and 73-1703,



See Laws 1933, 1 SS, Chap. 16 See Laws 1933, 1 SS, Chap. 16 Howevcr, l a t e r i n t h e 1930ts, Maricopa County d i d a t t e m p t t o l e v y taxes on i n t a n g i b l e s under t h e a u t h o r i t y o f t h e personal p r o p e r t y t a x laws. I n 1938 t h e Supreme C o u r t r u l e d t h a t t h i s c o u l d n o t be done, s t a t i n g i n Maricopa County v. Trustees o f Arizona Lodge, 52 A r i z . 329 (1938) : "The d i f f e r e n t l e g i s l a t u r e s t h a t have met s i n c e 1887 have passed amendments t o t h e t a x i n g s t a t u t e s ; have a u t h o r i z e d and approved s e v e r a l r e v i s i o n s of such laws, knowing a l l t h e w h i l e t h e a u t h o r i t i e s were n o t assessing and t a x i n g i n t a n g i b l e s , and have l e f t t l ~ es t a t u t e s unchanged. I n 1933, however, t h e l e g i s l a t u r e d i d enact a law t a x i n g i n t a n g i b l e s and nowhere t h e r e i n d i d i t recognize, by rererenee o r otherwise, t h a t we have e v e r had a l a w t a x i n g t h a t k i n d o f p r o p e r t y . U n f o r t u n a t e l y , t h a t a c t d i d n o t g i v e t o t h e taxpayer an o p p o r t u r ~ i t y t o be heard on h i s assessments and f o r t h a t reason i t was d e c l a r e d u n c o t l s t i t u t i o n a l . B i l l s have been i n t r o d u c e d i n a l l , o r p r a c t i c a l l y a1 1, t h e l e g i s l a t u r e s t h a t have met s i n c e then t o t a x i n t a t i y i l ~ l e s b u t none o f them has passed. Thus, f o r f i Fty y e a r s , under a cons t r u c t i ~ n the e x e c u t i v e and l e g i s l a t i v e departiuettt.~, we hdve had of no law t o t a x i n t a n g i b l e s , a1 though i t i s on ter~dedI)y defer~dants nc ha81e had, and now have, such a law. Whi l e t h e r e may he some doubt d s t o t h e ~ o r ectness o f t h e c o n s t r u c t i o n placed upoil tlre l a u LY r thuse wh0.e d u t y i t has been t o execute i t , we t h i l l k , bttcdttse i t has been I-ecognized f o r so many y e a r s as s e t t l e d law, i t i s btjtter t h a t th:) l c g i s l d t u r e change it than t h a t we d i s t u r b o u r vested r i g h t s hy s u s t a i n i n g defendants' p o s i t i o n , e s p e c i a l l y i n view o f t h e analyses e o f the law we have h e r e t o f o r e g i v e n . The coric luC;iotl tln t W hdvs leeached i s n u t i n c o n f l i c t w i t h what we s a i d i n S x . 2 - Q~-Cn!im~i-ssio~ v. Shattuck, supra? o r i n P e o p l e ' s ---Finance - T h r i f t 1- i g _CojunQ & ,n P -- - -44 A r i z . 440, 38 Pac. ( 2 d ) 6 4 3 , " Report----- f House Tax Study Comniittee, p. 2 o -R ~-o.-- tf House Tax Study Com~nit e e , p . 4 - ro t -Report p - .---- o f House Tax Study Cor~imittee~, . 4 A r i z o n a ' s Crazy Qi~il t o f Assessnient, prepared by F4ari cops Coilnty T.tx Payers A s s o c i a t i o n , I n c . , 1959, p. 1 S t a t e o f Arizona l n i t i a t i v e and Referendum I'ubl ic i t y Pamplll e t , 1962, compiled and i s s u e d by Wesley Bol i n , S e c r e t a r y o f S t a t e , p . 15 See laws 1963, Chapter 43 (42-135,A.R.S.) See Laws 1963, Chapter 43 (4L--131, A.R.S. ) See Laws 1963, Chapter 43 (42-135, A.K.S.)



32.



F i g u r e s used i n t h i s s e c t i o n came f r o m " A r i z o n a ' s P r o p e r t y Reappraisal Program," by A r l y n J. Larson, an unpublished paper w r i t t c n i n May o f 1968 ( A r i z 9 336.22 L 33) Laws 67, Chapter 107, Sec. 3 (42-121, A.R.S.) Laws 67, Chapter 107, Sec. 12 (42-221



33. 34. 35. 36. 37.



, A. R. S.



)



Laws 67, Chapter 107, Sec. 3, 12 (42-126,



127, 221, A.R.S. )



Laws 1967, Chapter 107, Sec. 39 (42-245, A.R.S.) Laws 67, Chapter 107, Sec. 14 (42-223, A.R.S.) Although t h e p r o p e r t y v a l u e l i s t was repealed, t h e l e g i s l a t u i ~ ed i d enact another form o f taxpayer r e p o r t i n g . I n 1967 t h e L e g i s l a t u r e enacted t h e r e a l e s t a t e t r a n s f e r f e e which c a l l e d f o r an a f f i d a v i t o f l e g a l value e v e r y t i m e r e a l e s t a t e was t r a n s f e r r e d . (Laws 67, 3 r d SS, Chapter 11, Sec. 2, 42-160 e t seq, A.R.S. ) The a f f i d a v i t s would e v e n t u a l l y become t h e b a s i s f o r t h e Mass A p p r a i s a l System (MAS) and were c l o s e l y p a t t e r n e d a f t e r t h e proposal submitted by t h e House Tax Study Commi t t e e i n 1957.



P

-



38. 39. 40.



Laws 67, Chapter 107, Sec. 70 (42-228, A.R.S.) Laws 67, 3 r d SS, Chapter 20, Sec. 2 (42-201, A.R.S.) Laws 67, 3 r d SS, Chapter 20, Sec. 1 (42-123, A.R.S.) iques T h i s s e c t i o n a1 so s t a t e d : I n t h e s t a n d a r d a p p r a i s a l me t l ~ o d sd n d tect~rr adopted, c u r r e n t usage s h a l l be i n c l u d e d i n t h c forn~clla f o r r e a c h i n g a d e t e r ~ n i n d t i o no f f u l l cash v a l u e and when t h e methods d ~ i dt e c t l r ~ i q u e s adopted p r e s c r i b e t l ~ euse o f market d a t a as an i n d i c a t i o n o f ~ n a r k e tvalue, the p r i c e p a i d f o r f u t u r e a n t i c i p a t e d propet-ty i n c r e m e r ~ t rs h d l l be excluded. See "Arizona ' s P r o p e r t y Reappraisal Progt.amYu by A r l y ~ iJ . L;lr son, an unpublished paper w r i t t e n i n May o f 1968 ( A r i z 9 336.22 L 33) Laws 69, Chapter 122, Sec. 5 (42-221, A.R.S. ) See Laws 68, Chapter 149, Sec. 1 and Laws 69, Chapter 122, Sec. 5 (42-221



I I

I



41 . 42. 43. 44.



, A.R ..L !



I n 1967, i t was extended from t e n t o 60 days (La