Performance audit, Board of Tax Appeals

              PERFORMANCE AUDIT
BOARD OF TAX APPEALS
Report to the Arizona Legislature
By the Auditor General
October 1989
89- 7
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
LINDA J. BLESSING, CPA
DEPUTY AUDITOR GENERAL
October 76, 1989
Members of the Arizona L e g i s l a t u r e
The Honorable Rose Mofford, Governor
Ms. Barbara Fisher , Chai rperson
Arizona Board of Tax Appeals
Transmitted herew~ th i s a report of the Auditor General, A Performance
Audit of the Arizona Board of Tax Appeals. This report i s i n response to
a June 2 , 1987, r e s o l u t i o n o f the J o i n t L e g i s i a t i v e Oversight Comrn~ ttee.
The report addresses the d i f f i c u l t i e s the Board has faced meeting i t s
seasonal workload which has t r i p l e d in the past f i v e years. With l i m i t e d
resources, the Board has been unable to provide a high qua1 i t y level of
service to taxpayers. The best way to address these problems would be to
spread the Board's workload over he e n t i r e year. Impiementirlg f i 1 i n g
fees to discourage f r i v o l o u s appeals would also help to manage the
problem.
My s t a f f and I w i l l be pleased to discuss or c l a r i f y items i n the report
DRN: lmn
STAFF: William Thomson
Peter N. Francis
Kimberly S. Hildebrand
Ned E. P a r r i s h
Jennifer DuBois
S i n c e r e l y ,
Dou$ lss R. Nor ton
Auditor General
2700 NORTH CENTRAL AVE, cb SUITE 700 Q PHOENIX, ARlZONA 55004 @ ( 602) 255- 4385
SUWARY
The Office of the Auditor General has conducted a performance audit of
the Arizona Board of Tax Appeals ( BOTA) i n response to a June 2, 1987,
resolution of the J o i n t L e g i s l a t i v e Oversight Committee. This
performance audit was conducted as p a r t o f the Sunset Review set f o r t h i n
Arizona Revised Statutes ( A. R. S.) $ 541- 2351 through 41- 2379.
The Arizona Board of Tax Appeals i s a q u a s i - j u d i c i a l agency c o n s i s t i n g o f
two d i v i s i o n s , known as D i v i s i o n One and D i v i s i o n Two, w i t h separate
j u r i s d i c t i o n s and equal power. Each d i v i s i o n has three appointed board
members. D i v i s i o n One provides an i ndependent appeals process re l a t ing
to the ad valorem taxation of property while D i v i s i o n Two handles appeals
regarding sales, income, and other types of taxes. This a u d i t focuses on
D i v i s i o n One which makes decisions a f f e c t i n g over $ 100 m i l l i o n i n
property taxes each year. These operations have been s e r i o u s l y impacted
by a workload which has t r i p l e d i n the past f i v e years w i t h no
corresponding increase i n resources. Due to time c o n s t r a i n t s and the
severity of the workload problems i n D i v i s i o n One, the audit did not
address D i v i s i o n Two.
The Seasonal Nature o f the Work L i m i t s D i v i s i o n One's
A b i l i t y t o Handle I t s Rapidly Growing Caseload ( see pages 7 through 14)
D i v i s i o n One's e f f o r t s to manage i t s r a p i d l y increasing caseload are
hampered by the extreme seasonality of the work. A. R. S $ 42- 245A. 2
requires D i v i s i o n One to decide appeals concerning real and secured
property by July 25 each year. Consequently, i n 1988 D i v i s i o n One
scheduled 2,339 hearings, reviewed 1,470 cases on- the- record, and made
decisions i n 3,756 appeals between A p r i l 1 and the end of J u l y . In f a c t ,
87 percent of a l l decisions rendered by the d i v i s i o n i n 1988 were made i n
two months, June and July .
The d i v i s i o n has t r i e d two very d i f f e r e n t approaches i n an attempt to
handle the workload. In 1988, the board decided many appeals based on
w r i t t e n evidence alone. In 1989, the board resolved to hear a l l appeals
by holding hearings for up to 10 and 112 hours per day, t r i p l i n g the
number o f hearing o f f i c e r s , and t r i p l i n g temporary c l e r i c a l help
expenditures. Regardless of how the board has approached i t s workload
problem, the large volume of appeals received by D i v i s i o n One l i m i t s the
board's abi l i ty to provide a high quai i t y of service to taxpayers. For
example, the large caseload makes rescheduling impractical and l i m i t s the
amount of time the board can devote to hearing and deciding appeals. The
time and resource c o n s t r a i n t s faced by the board must be eliminated i f
the d i v i s i o n i s to e f f e c t i v e l y manage i t s r a p i d l y growing caseload.
The Use of F i l i n g Fees and Other Appropriate Measures Should Be
Considered to Reduce the Number of Frivolous Appeals ( see pages 15
through 19)
Mass s o l i c i t a t i o n s by tax consultants and the no c o s t , no r i s k nature of
the current property tax appeals process i n v i t e s f r i v o l o u s appeals which
only serve to overload and abuse the appeals system. There i s no cost
involved i n appealing, and the worst possible outcome i s that the
property valuation w i l l not change.
Many appeals f i l e d w i t h the board are without merit and only serve to
overload the appeals system. An analysis of the outcomes of tax appeals
f i l e d i n 1988 showed that only 11 percent of the tax consultant appeals
resulted i n a reduction of f u l l cash value. In c o n t r a s t , 22 percent of
a l l other appeals resulted i n a reduction of f u l l cash value. Requiring
a nominal f i l i n g fee, as i s common i n j u d i c i a l cases, may discourage
taxpayers and consultants from f i l i n g i n d i s c r i m i n a t e appeals. Another
option would be to give the board clear a u t h o r i t y to raise assessed
valuations i f appropriate and warranted.
The Board Needs to Provide More Information
in I t s Written Decisions ( see pages 21 through 24)
Due to i t s overwhelming workload and time c o n s t r a i n t s , D i v i s i o n One i s
also unable to generate w r i t t e n decisions which provide adequate d e t a i l .
To accommodate i t s enormous workload, the board has developed an
" assembly l i n e , " computer- aided method for generating i t s n a r r a t i v e
Findings of Fact and Conc I usions of Law. However, the " canned"
n a r r a t i v e s which s t a t e the board's decision are b r i e f ( most are only
three to f i v e l i n e s ) , worded generally, and provide I i t t l e i n s i g h t i n t o
the reasoning behind the b o a r d ' s d e c i s i o n s . One complex case i n v o l v i n g
$ 44 m i l l i o n received only a b r i e f , t h r e e - l i n e d e c i s i o n . Also, many
appel lants whose cases were heard by the board at the close of the 1988
tax season received no n a r r a t i v e explanations as s t a t u t o r i l y required
because the board d i d not have time to generate t h i s information. In
contrast, s i m i l a r agencies i n some other states include more d e t a i l and
explanation i n t h e i r w r i t t e n decisions.
D i v i s i o n One I s Not Complying
w i t h Notice Requirements ( see pages 25 through 28)
Problems a r i s i n g from the board's workload have also been at least
p a r t i a l l y responsible for f a i l u r e s to comply w i t h State and federal due
process requirements. Although the board can decide cases based solely
on w r i t t e n arguments ( without holding a hearing), i n some instances
p a r t i e s were not provided adequate notice to o b j e c t , and i n others, the
p a r t i e s were given no opportunity t o o b j e c t . Even i f the p a r t i e s
objected the board could not have accommodated them. This p r a c t i c e not
only v i o l a t e s the board's own r u l e s , but i t also v i o l a t e s due process
requirements of State and federal laws. Furthermore, D i v i s i o n One's
current practice o f scheduling hearings two weeks i n advance may not
allow s u f f i c i e n t time to n o t i f y the p a r t i e s involved and f a i I s to comply
with s t a t u t o r y requirements.
Board Member Cornpensat i on
Is Inadequate ( see pages 29 through 32)
Board members responsible for decisions i n v o l v i n g mi l l i o n s of do1 l a r s i n
tax revenues are paid $ 50 per day. This i s an average of $ 6.25 an hour,
which i s less than custodians, laborers, and groundskeepers earn.
Further, the enormous workload of the d i v i s i o n requires a s i g n i f i c a n t
time commitment of board members. In f i s c a l year 1988, board members
worked from 77 to 160 days to accommodate the workload; during the tax
appeals season, board members work almost f u l l - t i m e . This i s far more
time than i s required of i n d i v i d u a l s serving on other Arizona boards.
Board of Tax Appeal members are also paid less than tax appeal board
members of seven other states we surveyed, and when the caseloads of
these agencies are considered, the discrepancy i n pay i s even more
g l a r i n g .
TABLE OF CONTENTS
Page
INTRODUCTION AND BACKGROUND. . . . . . . . . . . . . . . . . . .
FINDING I: THE SEASONAL NATURE OF THE WORK LIMITS
DIVISION ONE'S ABILITY TO HANDLE ITS
RAPIDLY GROWING CASELOAD . . . . . . . . . . . . . . . . . .
Division One's Workload I s Highly Seasonal . . . . . . . . .
Division One Has Tried Two Different Approaches
in an Attempt to Handle the Workload . . . . . . . . . . . .
Time and Resource Constraints Must Be Addressed
I f Division One Is to Be Effective . . . . . . . . . . . . .
Recomnendations. . . . . . . . . . . . . . . . . . . . . . .
FINDING I I : THE USE OF FILING FEES AND OTHER APPROPRIATE
MEASURES SHOULD BE CONSIDERED TO REDUCE
THE NUMBER OF FRIVOLOUS APPEALS. . . . . . . . . . . . . . .
Current Process Invites Appeals. . . . . . . . . . . . . . .
F i l i n g Fees and Other Measures
Should Be Considered . . . . . . . . . . . . . . . . . . . .
Recomnendations. . . . . . . . . . . . . . . . . . . . . . .
FINDING Ill: THE BOARD NEEDS TO PROVIDE MORE
INFORMATION IN ITS WRITTEN DECISIONS . . . . . . . . . . . .
Findings of Fact and Conclusions
of Law Must Be Provided. . . . . . . . . . . . . . . . . . .
Written Decisions Provide I n s u f f i c i e n t Information . . . . .
Some Appellants Received No Written Explanation. . . . . . . 24
Recomnendations. . . . . . . . . . . . . . . . . . . . . . . 2 4
TABLE OF CONTENTS Conlt
Page
FINDING I V : DIVISION ONE IS NOT COMPLYING
WITH NOTICE REQUIREMENTS . . . . . . . . . . . . . . . . . . 25
Some Cases Handled On- The- Record May Have Violated
Due Process Requirements and Could Potentially
Result i n Monetary L i a b i l i t y . . . . . . . . . . . . . . . . 25
Hearing Notices Are Not Timely . . . . . . . . . . . . . . . 27
Recommendation . . . . . . . . . . . . . . . . . . . . . . . 28
FINDING V: BOARD MEMBER COMPENSATION IS INADEQUATE. . . . . . . 2 9
Board Service Requires a Major Time Commitment . . . . . . . 29
Compensation Provided to Board
Members Islnadequate . . . . . . . . . . . . . . . . . . . 30
Recomnendation . . . . . . . . . . . . . . . . . . . . . . . 32
OTHER PERTINENT INFORMATION. . . . . . . . . . , . . . . . . . . 33
AREA FOR FURTHER AUDIT WORK. . . . . . . . . . . . . . . . . . . 35
SUNSETFACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 37
AGENCY RESPONSE
APPENDIX 1 .
APPENDIX II.
Example - Division One Findings of Fact and
and Conclusions of Law. . . . . . . . A- 1
Legislative Council Opinions. . . . . . . . . . A- 2
LlST OF TABLES
Page
TABLE 1 - Board of Tax Appeals
Statement of FTEs and Actual Expenditures
Fiscal Years 1986- 87, 1987- 88, and 1988- 89
( unaudited). . . . . . . . . . . . . . . . . . . . . . 2
TABLE 2 - Comparison of Division One's Caseload
and Staffing Resources . . . . . . . . . . . . . . . . 4
TABLE 3 - Results of Tax Consultant
Appeals Filed i n 1988. . . . . . . . . . . . . . . . . 17
TABLE 4 - Comparison of Compensation Levels and
Workload i n Arizona and Other States . . . . . . . . . 32
LlST OF FIGURES
FIGURE 1 - Division One, Board of Tax Appeals
Case load 1981- 1 989. . . . . . . . . . . . . . . . . . 3
FIGURE 2 - Arizona Property Tax Appeal Schedule. . . . . . . . . 8
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit of
the Arizona Board of Tax Aopeals i n response to a June 2, 1987,
resolution of the J o i n t L e g i s l a t i v e Oversight Committee. This
performance audit was conducted as part of the Sunset Review set f o r t h i n
Arizona Revised Statutes ( A. R. S. § § 41- 2351 through 41- 2379.
The Arizona Board of Tax Appeals i s a q u a s i - j u d i c i a l agency and consists
of two d i v i s i o n s , known as D i v i s i o n One and D i v i s i o n Two, w i t h separate
j u r i s d i c t i o n s and equal power. Each d i v i s i o n has three appointed board
members. D i v i s i o n One provides an independent appeal process r e l a t i n g to
the ad valorem taxation of property, while D i v i s i o n Two handles appeals
regarding sales, income, and other types of taxes. ' The board's
expenditures for f i s c a l years 1986- 87 through 1988- 89 are shown i n Table
1 ( see page 2 ) . This a u d i t focuses on D i v i s i o n One which makes decisions
a f f e c t i n g over $ 100 m i l l i o n i n property taxes each year. These
operations have been s e r i o u s l y impacted by an overwhelming workload.
D i v i s i o n One Caseload Overwhelming
D i v i s i o n One's workload has increased dramatically i n the past f i v e
years. During t h i s period, the number of appeals received annually
t r i p l e d while resources have remained s t a b l e . In a d d i t i o n , the July 25
deadline l i m i t s the amount of time the d i v i s i o n has to handle appeals.
Substantial increase i n workload - D i v i s i o n One's caseload has grown
s u b s t a n t i a l l y since the e a r l y 1980s. As Figure 1 ( see page 3) c l e a r l y
shows, the number o f property tax appeals jumped d r a m a t i c a l l y i n 1985,
( 1 ) Division One of the Board of Tax Appeals hears property t a x appeals f i l e d by
taxpayers, assessors, and the Department of Revenue concerning the valuation,
c l a s s i f i c a t i o n , and taxation of property. The vast m a j o r i t y of appeals involve
l o c a l l y assessed property ( property assessed by the county assessors). D i v i s i o n
One serves as the t h i r d step i n the appeals process. Property tax appeals f o r
l o c a l l y assessed property are f i r s t heard by the county assessors and then by the
county boards of e q u a l i z a t i o n , before being brought t o the Board o f Tax Appeals.
TABLE 1
BOARD OF TAX APPEALS
STATEMENT OF FTEs AND ACTUAL EXPENDITURES
FISCAL YEARS 1986- 87, 1987- 88, AND 1988- 89
( unaud i ted)
FIE Positions 7.5
Personal services $ 21 8,766
Employee- related 37,331
Professional & o u t s i d e s e r v i c e s 9,542
Travel, in- state 17,080
out- of- state 1,900
Equ i pmen t 8,280
Other operating 75,433
Total 3ixi& A2
Source: Arizona F i n a n c i a l I n f o r m a t i o n Systems and the State of Arizona,
Appropriations Report for the Fiscal Year Ended June 30, 1989
increasing almost 162 percent over the previous year. As a r e s u l t , a
system wh i ch was des i gned to hand l e about 2,000 appeal s was faced w i t h
handling almost 4,000. The d i v i s i o n continued to receive a large number
of appeals i n subsequent years and i n 1988 received 4,299 appeals. ( 1 )
In 1989, the d i v i s i o n received a record number of appeals, over 6,200,
This t r i p l i n g of the workload has placed a severe s t r a i n on the d i v i s i o n
since they have received e s s e n t i a l l y no a d d i t i o n a l resources to cope w i t h
the increase i n workload.
DIVISION ONE
CASELOAD 1 981 - 1 989
Source: D i v i s i o n One, State Board of Tax Appeals caseload s t a t i s t i c s
( 1 D i v i s i o n One's caseload included r e s i d e n t i a l , i n d u s t r i a1 , commercial, and other
type property appeals with property values ranging from $ 407 t o $ 208; 000,000.
No increase i n s t a f f resources - S t a f f i n g resources have not kept pace
w i t h the growing number of appeals. As a r e s u l t the d i v i s i o n i s faced
w i t h the dilemma of scheduling, hearing, and making decisions on three
times the number of appeals w i t h no corresponding increase i n s t a f f .
As Table 2 i n d i c a t e s , the size o f D i v i s i o n One's board and f u l l - t i m e
s t a f f has not increased since 1981. Furthermore, u n t i l 1989,
expenditures for temporary s t a f f had declined s u b s t a n t i a l l y while the
number of appeals received by the d i v i s i o n continued to increase.
TABLE 2
COMPARISON OF DIVISION ONE'S
CASELOAD AND STAFFING RESOURCES
Appea l s Board Expenditures f o r
Year Rece i ved Membe r s -( a) Temporary Staff( b)
( a 1 I n a d d i t i o n t o the FTEs l i s t e d since 1987, hearing o f f i c e r s have been contracted to
a s s i s t i n hearing appeals.
( b) During the appeals season ( A p r i l through J u l y ) , the d i v i s i o n h i r e s temporary
c l e r i c a l s t a f f t o generate hearing and d e c i s i o n n o t i c e s .
( c ) Only $ 11,100 was a l l o c a t e d f o r temporary s t a f f i n f i s c a l year 1989. The remaining
funds came from vacancy savings.
Source: Auditor General analysis of D i v i s i o n One, State Board of Tax
Appeals caseload and expenditure data
Limited amount o f time t o hear appeals - Not only must the d i v i s i o n
handle a workload which has t r i p l e d w i t h no increase i n resources, i t
must do so w i t h i n a four- month period. The board i s s t a t u t o r i l y required
to hear and decide most property tax appeals by July 25 each year. Since
D i v i s i o n One does not receive many appeals before Apri I , the board must
review the vast m a j o r i t y of appeals w i t h i n a four- month period each
year. "' The seasonal i t y of the appeals time frame severely impacts
the d i v i s i o n ' s a b i l i t y to handle the increasing caseload.
Reasons For The
Increase I n Appeals
There appear to be several reasons for the growth i n property tax
appeals. The i n i t i a l jump i n appeals i n 1985 can probably be a t t r i b u t e d
to the Department of Revenue's ( DOR) implementation of a blanket increase
i n the values o f commercial property and vacant land. The continued high
number of appeals and a d d i t i o n a l growth i n 1988 and 1989 coincides w i t h
the advent of tax consultants. The number of tax consultants began to
grow i n 1985 as the p o t e n t i a l savings of tax appeals were recognized. In
1988, tax consultants were associated w i t h at least 40 percent of the
appeals f i l e d with the d i v i s i o n . A p o r t i o n of the growth i n appeals i s
also due to an increase i n the amount of taxable property i n Arizona.
Between 1981 and 1988, there was a 22 percent increase i n the number of
parcels statewide.
The increase i n property tax appeals may also be related to the
taxpayers' lack of understanding of the Limited Property Value ( LPV)
formula. "' This formula i s used by county assessors to determine the
value of property for assessment of primary property taxes. As the rate
of growth i n Arizona's property values began to slow i n the mid- 1980s,
l i m i t e d property values continued to increase. Some taxpayers may have
f i l e d a d d i t i o n a l appeals during t h i s period because they d i d not
understand why the LPV was r i s i n g when the p r o p e r t y ' s market value for
that year was not.
( 1 ) O f the 4,299 t o t a l 1988 appeals, 1,700 were received i n June. These 1 ,700 appeals
had t o be heard and decided i n l e s s than two months.
( 2) The LPV formula i s designed t o l i m i t the amount property values can increase i n any
given year. I n periods o f strong economic growth, when property values are
increasing rapid1 y, the Limi ted Property Value of parcel s 1 ags behind t r u e market
value. Howeuer, i n years when property values a r e n o t growing r a p i d l y , the LPV
continues t o r i s e i n an e f f o r t t o approximate market value.
F i n a l l y , a former d i r e c t o r of DOR be1 ieves that DOR and the county
assessors have become more aggressive i n the valuation of property i n
recent years. These e f f o r t s to b r i n g LPV closer i n l i n e w i t h market
value may have also caused an increase i n appeals.
Audit Scope
Our audit of the Arizona Board of Tax Appeals concentrated on the
property tax operations i n D i v i s i o n One. The report focuses on
strategies to manage the appeals workload i n D i v i s i o n One and changes
needed to correct problems which have developed as a r e s u l t of the
workload. In a d d i t i o n , we addressed the 12 s t a t u t o r y Sunset Factors ( see
pages 37 through 40).
Due to time c o n s t r a i n t s and the s e v e r i t y o f the workload problems i n
D i v i s i o n One, the a u d i t did not address D i v i s i o n Two of the Board of Tax
Appeals which handles appeals of sales, income, use, and other types of
taxes. The section Area for Further Audit Work addresses t h i s d i v i s i o n
( see page 35) .
This audit was conducted i n accordance with generally accepted
governmental a u d i t i n g standards.
The Auditor General and s t a f f express appreciation to the Arizona Board
of Tax Appeals, c l e r k s , and s t a f f for t h e i r cooperation and assistance
during the course of our a u d i t .
FINDING I
THE SEASONAL NATURE OF THE WORK LIMITS DIVISION
ONE'S ABILITY TO HANDLE ITS RAPIDLY GROWING CASELOAD
D i v i s i o n One's e f f o r t s to manage i t s r a p i d l y increasing caseload are
hampered by the extreme seasonal i ty of the work. S t a t u t o r y requirements
and f l u c t u a t i o n i n the number of appeals received throughout the season
l i m i t the amount of time a v a i l a b l e to hear property tax appeals. Q u a l i t y
of service s u f f e r s regardless of how the d i v i s i o n t r i e s to cope w i t h the
workload. The best way to address the board's caseload may be to spread
the workload over the e n t i r e year.
D i v i s i o n One's Workload
I s Highly Seasonal
D i v i s i o n One's workload i s extremely c y c l i c a l i n nature. Most property
tax appeals received by the d i v i s i o n are heard w i t h i n a four- month period
each year. The seasonal i t y of the work i s due t o s t a t u t o r y p r o v i s i o n s
which r e s t r i c t the amount of time i n which the board may hear appeals.
The i r r e g u l a r flow of appeals during the tax appeal season compounds the
d i v i s i o n ' s workload problems.
D i v i s i o n One receives t h e vast m a j o r i t y of i t s property tax appeals
between A p r i l and J u l y each year. Approximately 96 percent of the 4,299
appeals i n 1988 were f i l e d during t h i s period. D i v i s i o n One scheduled
2,339 hearings, reviewed 1,470 cases on- the- record, and made decisions i n
3,756 appeal s cases between Apr i I 1 and the end of Ju l y'."
The seasonality of the workload, described above, i s due to p r o v i s i o n s i n
T i t l e 42 of the Arizona Revised Statutes t h a t l i m i t the time i n which the
board may hear p r o p e r t y t a x appeals ( see Figure 2, page 8 ) . A. R. S.
$ 42- 245A. 2 requires D i v i s i o n One t o decide appeals concerning real
( ' ) On- the- record decisions are based sol el y upon the wri t t e n documentation provided by
p a r t i e s involved i n the appeals. I n these cases, no hearings are held, and oral
testimonies a r e n o t received by the board.
FIGURE 2
ARIZONA PROPERTY TAX APPEAL SCHEDULE
January 1 County assessors not i fy property owners of the f u l I cash
value and l i m i t e d value of t h e i r properties by January 1.
January 31 Property owners may appeal the assessors' values on or
before January 31.
A p r i l 1 County assessors s h a l l r u l e on every appeal by A p r i l 1.
A p r i l 15 Property owners can appeal the assessors' decisions to the
county boards of e q u a l i z a t i o n w i t h i n 15 days of the date of
mailing o f the assessors' decisions.
May 30 May 30 i s the l a s t day for the counties to mail w r i t t e n
decisions to property owners. ( The county boards of
e q u a l i z a t i o n must complete a l l appeal hearings by May 10,
make decisions on a l l appeals w i t h i n 10 days of the hearing
date, and must mai l w r i t t e n decisions to property owners
w i t h i n 10 days of the date of decision.)
June 15 Property owners may appeal the county boards' decisions to
the Board o f Tax Appeals w i t h i n 15 days of the date of
mai l i ng o f the county boards' decisions . ca)
July 25 The Board of Tax Appeals must hear and decide most property
tax appeals by July 25 and transmit to the Department of
Revenue and county boards of e q u a l i z a t i o n a statement of
changes i t has made i n the valuation of p r o p e r t y .
I n 1989 D i v i s i o n One received appeals o f corrected and amended county board
o f e q u a l i z a t i o n decisions as l a t e as J u l y 7.
Source : Analysis by Auditor General s t a f f of the Annual Calendar of
Legal Events, Ad Valorem Tax Schedule, 1989
property by July 25 each year. In a d d i t i o n , tax appeals concerning
l o c a l l y assessed property must f i r s t be reviewed by the appropriate
county assessor and the county board of e q u a l i z a t i o n before being
considered by D i v i s i o n One. The boards of equal i z a t ion may hear appeals
through May 10, must render a decision w i t h i n 10 days of the hearing
date, and must mail a w r i t t e n decision to the p a r t i e s w i t h i n 10 days of
the decision date. Property owners and county assessors have 15 days
from the date of the m a i l i n g of the county board's decision to appeal to
D i v i s i o n One. As a r e s u l t , appeals may be f i l e d w i t h the board as late
as mid June.
Even w i t h i n the four- month period between A p r i l and J u l y , the workload i s
uneven. In 1988, D i v i s i o n One received 41 percent of i t s appeals i n June
and July. As a r e s u l t , much of the board's work had to be done i n these
two months. In f a c t , 87 percent of the decisions rendered by the
d i v i s i o n i n 1988 were made during t h i s period.
There appears to be two major reasons for the i r r e g u l a r i t y i n the flow of
appeals. F i r s t , growth i n the number of property tax appeals has made i t
d i f f i c u l t for the county boards of e q u a l i z a t i o n to meet t h e i r s t a t u t o r y
dead1 ine. Second, according to a former board member, tax agents have
submitted large numbers of appeals j u s t p r i o r to the f i l i n g deadlines.
D i v i s i o n One Ha's T r i e d Two D i f f e r e n t
Approaches in an Attempt t o Handle the Workload
D i v i s i o n One has t r i e d two very d i f f e r e n t approaches i n an attempt to
handle the workload. In 1988, the d i v i s i o n made decisions on over h a l f
i t s cases based only on w r i t t e n evidence submitted. In 1989, the board
managed to hold hearings on every case by t r i p l ing temporary s t a f f
expenditures, t r i p l i n g the number of hearing o f f i c e r s , and shortening the
length of many hearings. However, both approaches compromise the q u a l i t y
of the board's service.
1988 e f f o r t s - The board was unable to hold hearings for a l l property
tax appeals received i n 1988. D i v i s i o n One board members and t h e i r s t a f f
. worked a combined 600 hours of overtime i n 1988 yet were s t i l l unable to
hold hearings for a l l cases. Hearings were scheduled on 33 of the 43
avai lable weekdays i n May and June and were t y p i c a l l y scheduled at
15- minute i n t e r v a l s , a l l o w i n g the board to hear 28 appeals each
day. " ) Board members reviewed and deliberated cases on the few days
when hearings were not scheduled, as well as during evenings and
weekends.
D i v i s i o n One board members and s t a f f would p r e f e r t o h o l d hearings for
every appeal. However, the board simply received more appeals than could
be scheduled for hearings i n the time a l l o t t e d and w i t h the s t a f f
resources a v a i l a b l e . As a p r a c t i c a l matter, the board decided many
appeals " on- the- record." At least 1,472 appeals were decided i n t h i s
manner i n 1 9 8 8 . ' ~ ) D i v i s i o n One decided these appeals on- the- record
because board members f e l t an o b l i g a t i o n to consider a l l of the appeals
received .
Taxpayers have expressed d i s s a t i s f a c t i o n w i t h D i v i s i o n One's use of
on- the- record decision making i n 1988. Having an opportunity to appear
before the board seems to be important to taxpayers. ( Ninety percent of
the 30 taxpayers surveyed immediately f o l l o w i n g t h e i r 1989 appeal hearing
indicated that i t was very important to them to have an opportunity to
present t h e i r case i n person.) Further, a survey of 30 taxpayers who
received on- the- record decisions i n 1988 revealed t h a t n e a r l y 70 percent
were e i t h e r d i s s a t i s f i e d or very d i s s a t i s f i e d w i t h having t h e i r appeal
decided i n t h i s f a ~ h i o n . ' ~ A' lthough the State board has the a u t h o r i t y
( 1 ) I n 1988, D i v i s i o n One conducted two sets of hearings simultaneously on f i v e
separate occasions and once h e l d t h r e e sets o f hearings throughout the day.
M u l t i p l e hearings were again being held i n 1989 because of the magnitude of the
caseload. To do t h i s the board must use hearing o f f i c e r s and d i v i d e i n t o panels.
( 2 ) The number of on- the- record decisions was probably much higher because t h i s f i g u r e
does n o t i n c l u d e on- the- record decisions made when the taxpayer f a i l e d t o appear a t
the hearing.
( 3 ) Auditor General s t a f f random1 y selected 90 i n d i v i d u a l s to survey who had appealed
t o D i v i s i o n One. T h i r t y i n d i v i d u a l s were interviewed i n person immediately
following t h e i r 1989 hearing; 30 i n d i v i d u a l s who appeared before the board and had
already received t h e i r d e c i s i o n were contacted by phone; and 30 whose cases were
handled on- the- record i n 1988 were contacted by phone. Although the small sample
i s not s t a t i s t i c a l l y val i d , the responses provide a qua1 i t a t i v e assessment o f
D i v i s i o n One operations.
to decide appeals on- the- record, a recent L e g i s l a t i v e Council Opinion
indicates that D i v i s i o n One did not s a t i s f y due process requirements i n a
number of the appeals decided on- the- record i n 1988 ( see Finding I V , page
1989 e f f o r t s - During the 1989 season, the board resolved to hear a l l
appeals. Even though the board received over 6,000 appeals i n 1989, i t
did not resort to hearing cases on- the- record unless p a r t i e s requested i t
or persons f a i l e d to appear for a scheduled hearing. To do t h i s , the
board lengthened the hours spent i n hearings from a normal schedule of 6
to 7 hours a day to as many as 10 and 1/ 2 hours. Some days had over 100
cases scheduled i n one hearing session. The board shortened many
hearings i n v o l v i n g tax agents from 15 to 10 minutes, t r i p l e d the number
of hearing o f f i c e r s a v a i l a b l e to hear cases. and t r i p l e d temporary
c l e r i c a l help expenditures t o a s s i s t i n n o t i c i n g p a r t i e s of hearings and
decisions. ( The board was able to increase i t s number of hearing
o f f i c e r s and temporary help through the one- time use of vacancy savings.)
Service to taxpayers - Regardless of how the board has approached i t s
workload problem, the large volume of appeals received by D i v i s i o n One
l i m i t s the board's a b i l i t y to provide high q u a l i t y service t o taxpayers.
F i r s t , the board can provide only a l i m i t e d amount of time to hear and
decide each appeal. Second, D i v i s i o n One cannot reschedule appeal
hearings. Third, the d i v i s i o n may devote i n s u f f i c i e n t time to the
decision process. F i n a l l y , the board has been unable t o provide timely
n o t i f i c a t i o n o f i t s decisions to some taxpayers.
The amount of time a l l o t t e d to property tax appeal hearings may be
i n s u f f i c i e n t . As mentioned e a r l i e r , the board t y p i c a l l y scheduled
hearings at 15- minute i n t e r v a l s . In 1989, hearings have been scheduled
i n 10- minute i n t e r v a l s i n tax agent cases. This i s done to maximize the
number of appeals that can be heard by D i v i s i o n One and consolidate
appeals i n v o l v i n g s i m i l a r issues. The board believes t h i s i s enough time
i n cases i n v o l v i n g tax agents. However, a survey of states w i t h s i m i l a r
a d m i n i s t r a t i v e p r o p e r t y tax appeal boards indicates that these states
t y p i c a l l y a l l o c a t e more time to appeal hearings. Property tax appeal
hearings i n Colorado usually range from one to two hours i n length.
Hearings i n South Dakota and Idaho generally l a s t between 30 minutes and
one hour. Commercial property appeal hearings i n Washington, Kansas, and
I l l i n o i s range from two hours t o several weeks i n length.
The d i v i s i o n ' s large caseload also makes rescheduling i m p r a c t i c a l . In
1988, the board received more appeals than could be scheduled for
hearing. As a r e s u l t , the board simply t r i e d to schedule as many
hearings as i t could i n the time a v a i l a b l e . I f persons could not appear
at the time scheduled, there was no opportunity to reschedule for a
d i f f e r e n t time. In 1989, the board maintained the p o l i c y o f not
rescheduling hearings. The lack of scheduling f l e x i b i l i t y may r e s u l t i n
an increase i n the number o f no- shows and a reduction i n the level of
taxpayer s a t i s f a c t i o n w i t h the appeals process.
Furthermore, d e l i b e r a t i o n s and decisions may be inadequate. Some tax
consultants question whether the board devotes enough time to reviewing
and considering the evidence presented i n hearings. In a d d i t i o n , the
board does not have time to produce w r i t t e n decisions which contain
s u f f i c i e n t information ( see Finding I l l , page 21).
F i n a l l y , D i v i s i o n One has been unable to provide some taxpayers with
timely n o t i c e of the b o a r d ' s d e c i s i o n . In 1987, the d i v i s i o n was unable
to produce 450 decisions ( over 14% of a l l decisions) w i t h i n 30 days as
s t a t u t o r i l y required. The number of late decisions was s u b s t a n t i a l l y
higher i n 1988, w i t h at least 765 decisions generated more than 30 days
a f t e r the hearing. This represents over 19 percent of a l l decisions
rendered i n 1988.
Time and Resource Constraints Must Be
Addressed I f D i v i s i o n One I s to Be Effective
The time and resource c o n s t r a i n t s faced by the board must be eliminated
i f the d i v i s i o n i s to e f f e c t i v e l y manage i t s r a p i d l y growing caseload.
However, simply addressing D i v i s i o n One's resource problems, without also
dealing w i t h the s i g n i f i c a n t time constraints, would be i n e f f i c i e n t .
Increasing D i v i s i o n One's resources - Given current time c o n s t r a i n t s ,
substantial increases i n s t a f f i n g and material resources are necessary.
As previously mentioned, D i v i s i o n One's resources have not kept pace with
the growing number of property tax appeals. Although the annual number
of appeals received by the board has increased more than 300 percent
since 1984, expenditures have grown only 19 percent, and the number of
FTEs has not increased at a l I . The board has received at least 40
percent more appeals i n 1989 than were received i n 1988, yet the
d i v i s i o n ' s budget was increased by only $ 600 for f i s c a l year 1990.
To meet the demands of i t s workload, the board would need additional
funding for hearing o f f i c e r s , temporary c l e r i c a l help, and space. In
1989, the board employed three hearing o f f i c e r s on a l i m i t e d basis.
Because vacancy savings were a v a i l a b l e at the time, i t was a b l e t o spend
more than i t o r i g i n a l l y a l l o c a t e d f o r hearing o f f i c e r s . S i m i l a r l y , the
board spent an a d d i t i o n a l $ 6,000 on temporary c l e r i c a l help. Again, due
t o the one- time a v a i l a b i l i t y of vacancy savings, the board was able to
spend over $ 17,000 for a l l temporary help as compared to less than $ 6,000
spent i n 1988. The board may also need a d d i t i o n a l funding for space to
ho l d hear i ngs. I n 1989, the board held three hearings
simultaneously on many days. However, i t has only one hearing room which
i s shares w i t h D i v i s i o n Two. Some hearings had to be held i n a board
o f f i c e which was not designed for hearings.
Removing time c o n s t r a i n t s - A b e t t e r way to address D i v i s i o n One's
workload problem would be to spread i t s work over the e n t i r e year and
eliminate the seasonal cycle. Operating i n such a high paced, s t r e s s f u l
manner as was done i n 1989 may eventually take i t s t o l l on s t a f f and
board members. Increased turnover may occur i f s t a f f are required to
work long hours and on weekends for two o r three months each year. The
board's most experienced hearing o f f i c e r indicated he does not want to
( 1 ) The resources a l l o t t e d t o the D i v i s i o n One board would need to be increased f u r t h e r
i f changes recommended i n t h i s r e p o r t are implemented. Preparing i n d i v i d u a l i z e d
decisions ( see Finding 111, page 21 ) , schedul i ng d e l i beration and deci sion- making
meetings ( see Other P e r t i n e n t Information, page 33), and increasing the length of
hearings a l l requi r e addi ti onal time and resources.
work again at the same h e c t i c pace that he worked i n 1989. In addition
to reducing the r i s k of s t a f f turnover, spreading out the board's
workload would a l s o g i v e the board time to generate more d e t a i l e d w r i t t e n
decisions ( see Finding 1 1 1 , page 21). Six of the seven states we
surveyed a l low the i r property tax appeal boards to hear cases throughout
the year.
However, the e f f e c t s o f modifying the appeals process timetable need to
be considered. Increasing the amount of time i n which the d i v i s i o n may
hear appeals would impact other e n t i t i e s . For example, counties
e s t a b l i s h t h e i r budgets i n August based on property valuations f i n a l i z e d
by July 25. Consequently, any extension of the July 25 deadline would
serious l y impact the count i e s t budget i ng processes . ( I )
RECOWENDATIONS
1. The L e g i s l a t u r e should consider extending the July 25 deadline,
established i n A. R. S. $ 42- 175, to allow the board adequate time to *
hear the property tax appeals i t receives. However, t h i s change
would need to be considered i n l i g h t of i t s impact on other e n t i t i e s
and local budgeting p r a c t i c e s . In a d d i t i o n , D i v i s i o n One may s t i l l
need a d d i t i o n a l resources to handle the caseload.
2 . I f t h i s s t a t u t o r y deadline i s not modified, the L e g i s l a t u r e should
consider a s u b s t a n t i a l increase i n D i v i s i o n One's budget for
temporary hearing o f f i c e r s , c l e r i c a l support, and space requirements.
( I ) The Property Tax D i v i s i o n of the Department of Revenue i s c u r r e n t l y c o l l e c t i n g and
studying information on other s t a t e s ' property t a x systems. I n a d d i t i o n , a
committee comprised of representatives of DOR, the county assessors and boards of
e q u a l i z a t i o n , t h e Board of Tax Appeals' D i v i s i o n One c l e r k , and others has been
organized t o address Arizona's property tax system. According to a DOR assistant
d i r e c t o r , a r e p o r t out1 i n i ng the committee's recommendations should be ready i n
October 1989.
FINDING I I
THE USE OF FILING FEES AND OTHER APPROPRIATE MEASURES
SHOULD BE CONSIDERED TO REDUCE THE NUMBER
OF FRIVOLOUS APPEALS
I n December 1987, the Maricopa County Board of Supervisors
received a form l e t t e r from a tax consultant i n v i t i n g the
supervisors " t o discuss your greater Phoenix property and
o u t l i n e a c r i t i c a l path for an upcoming appeal." A Maricopa
County o f f i c i a l b e l i e v e s t h i s l e t t e r , mailed one month before
v a l u a t i o n notices were issued, was probably mailed to a l l county
property owners . ( I )
Mass s o l i c i t a t i o n s by tax consultants and the no cost, no r i s k nature of
the current property tax appeals process i n v i t e s appeals which lack m e r i t
and only serve to overload and abuse the appeals system. I n s t i t u t i n g
f i l i n g fees and other measures should be considered to discourage
i n d i s c r i m i n a t e appeals of t h i s type.
Current Process
I n v i t e s Appeals
The current process o f appealing t o D i v i s i o n One i n v i t e s appeals
regardless of t h e i r m e r i t . There i s no cost involved i n appealing, and
the worst possible outcome i s that the property v a l u a t i o n w i l l not
change. The tax c o n s u l t i n g industry has taken advantage of these
circumstances, r e s u l t i n g i n enormous increases i n the number of appeals
f i l e d i n recent years. Many of these appeals are f r i v o l o u s .
Tax consultants generate mass appeals - Much of the increase i n the
board's workload i s a t t r i b u t a b l e to tax consultants who have recognized
and taken advantage o f a p o t e n t i a l l y l u c r a t i v e f i n a n c i a l o p p o r t u n i t y .
The number of tax consultants involved i n the property tax appeals
process began to grow i n 1985. Tax consultant appeals represent a large
p o r t i o n of the board's workload. A t least 32 percent of the 3,522
appeals f i l e d i n 1987 and a t least 40 percent o f the 4,299 appeals f i l e d
i n 1988 involved tax c o n s u l t a n t s .
The board received t h i s l e t t e r because i t i s l i s t e d as the owner f o r a l l county
property.
Tax consultants have generated business through telephone contacts,
m a i l i n g s , and advertisements i n various p u b l i c a t i o n s . These
s o l i c i t a t i o n s are a t t r a c t i v e to the property owner because i t may cost
the owner nothing to respond. Some consultants are paid on a contingency
basis, u s u a l l y a percentage of any tax savings generated. Moreover,
during the 1989 season, a taxpayer responding to a consultant d i d not
r i s k a tax increase. No valuations were increased, even i f an increase
may have been warranted.'" Therefore, the money- saving p o t e n t i a l may
have been s u f f i c i e n t t o cause many property owners to respond favorably
to tax consultant s o l i c i t a t i o n s .
Some appeals have even been f i l e d without the consent of the property
owner. Maricopa County has documented several cases i n which property
owners were unaware that an agent had f i led an appeal at the county l e v e l .
Many appeals are frivolous - Many appeals f i l e d w i t h D i v i s i o n One are
without merit and only serve to overload the appeals system. The board
chairperson believes many tax agent appeals are f r i v o l o u s and f i l e d j u s t
to see what the agent can get out of the system.
An analysis of the outcomes of tax appeals f i l e d i n 1988 shows that most
tax consultant appeals d i d not r e s u l t i n a tax reduction. As shown i n
Table 3 ( see page 17), only 11 percent of the tax consultant appeals
resulted i n a reduction i n f u l l cash value, and 27 percent a c t u a l l y
resulted i n an increase i n f u l l cash value. In c o n t r a s t , 22 percent of
the appeals which d i d not involve a consultant resulted i n a reduction,
and 10 percent resulted i n an increase i n f u l l cash value. These
differences suggest that tax consultants may f i l e more f r i v o l o u s appeals
than taxpayers a c t i n g on t h e i r own b e h a l f .
( 1 ) I n 1988, the board increased many values i n taxpayer appealed cases. However i t
was advised by the Attorney General's o f f i c e that it d i d not have c l e a r s t a t u t o r y
a u t h o r i t y t o do so. It d i d not increase taxpayer appealed values i n 1989, even i f
warranted ( unless DOR or the assessor cross appealed); and, t h e r e f o r e , taxpayers
did not r i s k increasing t h e i r tax l i a b i l i t y i f they f i l e d an appeal.
TABLE 3
RESULTS OF TAX CONSULTANT APPEALS
FILED IN 1988
Reduc t i on Increase I n
I n F u l l No Ful 1 Cash
Cash Value Change Va I ue Total
Tax Consultant
Appeal s 169 ( 11%) 960 ( 62%) 420 ( 27%) 1,549
A l I Other 537 ( 22%) 1,622 ( 68%) 228 ( 10%) 2,387
Appeal s
Source: Auditor General analysis o f D i v i s i o n One board p e t i t i o n data
F i l i n g Fees and Other Measures
Shou 1 d Be Considered
F i l i n g fees and other appropriate measures should be considered to
discourage f r i v o l o u s and i n d i s c r i m i n a t e appeals. Nominal f i l i n g fees may
help to deter the f i l i n g of appeals which lack a l e g i t i m a t e b a s i s . Other
measures, such as c l a r i f y i n g the board's a u t h o r i t y t o raise property
values, may also discourage f r i v o l o u s f i l i n g s .
F i l i n g fees - Requiring a nominal f i l i n g fee may discourage taxpayers
and consultants from f i l i n g indiscriminate appeals. F i l i n g fees are
common i n j u d i c i a l cases. Appellants pay a $ 25 f i l i n g fee i n Superior
Court and at the Court o f Appeals. Even small claims c o u r t s r e q u i r e a
f i l i n g fee. In Maricopa County, a $ 3 fee i s required i f the claim amount
i s less than $ 1,000. A $ 20 fee i s required i f the claim amount i s
between $ 1,000 and $ 2,500.
A few states w i t h a d m i n i s t r a t i v e tax appeals bodies simi l a r to Arizona's
a l s o r e q u i r e a f i l i n g fee. The State of Washington has set i t s f i l i n g
fee at $ 5. I l l i n o i s has proposed i n s t i t u t i n g a f i l i n g fee for i t s board
of $ 20 per parcel. "' New Hampshire charges a $ 25 fee plus $ 5 for
each a d d i t i o n a l p l a i n t i f f . Thus, properties j o i n t l y owned by a husband
and wife require a $ 30 f i l i n g fee.
To ensure that fees are not p r o h i b i t i v e , the D i v i s i o n One c l e r k has
suggested that fees be set on a s l i d i n g scale based on the valuation or
type of property involved. Properties of lower value could be charged a
lower f i l i n g fee under the assumption that these owners would have less
a b i l i t y to pay. Michigan has i n s t i t u t e d t h i s type of s l i d i n g scale fee
s t r u c t u r e f o r a l l r e s i d e n t i a l r e n t a l , a g r i c u l t u r a l , income producing, and
business p r o p e r t i e s . Fees range from $ 50 to $ 250 depending on the value
of the property.
In a d d i t i o n to discouraging f r i v o l o u s appeals, a f i l i n g fee would
generate a d d i t i o n a l revenue to support board operations. A f i l i n g fee of
only $ 10 per appeal, for example, would have generated over $ 60,000 i n
new revenue i n 1989 to support D i v i s i o n One operations. Imposing a fee
of $ 20 per parcel as proposed in I l l i n o i s would generate enough revenue
to cover the board's e n t i r e current budget.
Other measures - The board chairperson has suggested an a l t e r n a t i v e
might be to give the board a u t h o r i t y to raise assessed valuations i f
appropriate and warranted. According to a L e g i s l a t i v e Council opinion
dated July 6, 1989, the board c u r r e n t l y does not have t h i s a u t h o r i t y i n
appeals brought by taxpayers. According to the board chairperson,
however, g i v i n g the board the a u t h o r i t y to raise values where appropriate
would be one of the most e f f e c t i v e ways to discourage f r i v o l o u s
appea l s . (') The board has general s t a t u t o r y a u t h o r i t y t o equalize
values i n i t s enabling s t a t u t e s . In a d d i t i o n , under A . R . S . 942- 174 the
board may at any time request to review valuations and may " increase or
( 1 ) An i n d i v i d u a l appeal may i n v o l v e mu1 ti pl e parcel S .
( 2 ) An a l t e r n a t i v e measure suggested by the board chairperson i s a l l o w i n g the board to
recover costs from the appellant if an appeal i s determined, upon review, to be
f r i v o l o u s . She compares t h i s approach t o the awarding of fees by the courts as a
sanction against f r i v o l o u s l a w s u i t s .
decrease" a property valuation to achieve e q u a l i z a t i o n . However, t h i s
a u t h o r i t y does not extend to taxpayer appealed valuations unless a cross
appeal i s f i l e d by DOR or the assessor. I n c o n t r a s t , I l l i n o i s ' Property
Tax Appeal Board increases valuations i n taxpayer appeals when
warranted. According to i t s c h i e f hearing o f f i c e r , i t i s the board's
i n t e n t t o determine the correct assessment and i n some cases that r e s u l t s
i n an increase i n the v a l u a t i o n .
To discourage f r i v o l o u s appeals, the L e g i s l a t u r e should consider:
1, Amending board statutes to require appellants to pay a f i l i n g fee.
2. Providing the board w i t h clear s t a t u t o r y a u t h o r i t y t o raise
valuations to f u l l cash value where appropriate.
FINDING Ill
THE BOARD NEEDS TO PROVIDE MORE INFORMATION
IN ITS WRITTEN DECISIONS
Due to i t s overwhelming workload and time c o n s t r a i n t s , D i v i s i o n One i s
also unable to generate adequately d e t a i l e d w r i t t e n d e c i s i o n s . Findings
of Fact and Conclusions of Law do n o t provide taxpayers w i t h s u f f i c i e n t
information to understand the basis of the board's d e c i s i o n s . A t the
close of i t s 1988 appeals season, the board was so overburdened w i t h
cases that i t was unable to provide some taxpayers w i t h even t h i s l i m i t e d
amount of information required by law.
Findings of Fact and Conclusions o f Law
Must Be Provided
The board's w r i t t e n decisions should include s u f f i c i e n t information to
support the board's a c t i o n s . A. R. S. 541- 1063 requires that
a d m i n i s t r a t i v e agencies p r o v i d e s e p a r a t e l y stated Findings of Fact and
Conclusions of Law i n contested cases i n which the f i n a l d e c i s i o n o r
order i s adverse to any p a r t y to the case. This s t a t u t e and Board Rule
R16- 2- 120 f u r t h e r mandate that D i v i s i o n One s t a t e the u n d e r l y i n g f a c t s
supporting i t s f i n d i n g s .
W r i t t e n Decisions Provide
I n s u f f i c i e n t I n f o r m a t i o n
D i v i s i o n One's w r i t t e n decisions do not provide much d e t a i l and may not
f u l l y meet the s p i r i t and i n t e n t of the s t a t u t o r y requirement and the
board's r u l e . To meet the demands created by i t s increasing workload,
the board has developed a computer- aided method f o r generating w r i t t e n
decisions. However, the n a r r a t i v e s describing the board's d e c i s i o n s a r e
b r i e f and provide l i t t l e i n s i g h t i n t o the reasoning behind the
decisions. By c o n t r a s t , tax appeal agencies i n other s t a t e s include more
d e t a i l and explanation i n t h e i r w r i t t e n decisions.
Decisions are computer- generated - D i v i s i o n One's w r i t t e n decisions
t y p i c a l l y consist of two pages. The f i r s t page shows, i n numerical
format, the board's valuation of the property i n question. The second
page contains the board's Findings of Fact and Conclusions of Law i n
n a r r a t i v e form. ( See Appendix I , page A- 1 , for a document sample.)
To accommodate i t s enormous workload, the board has developed an
" assembly l i n e , ' ' computer- aided method for generating i t s n a r r a t i v e
Findings of Fact and Conclusions of Law. Three paragraphs i n the
n a r r a t i v e may be changed. The remainder are standard paragraphs
contained i n each decision. The paragraphs which change are the
p e t i t i o n e r ' s argument ( what the appellant taxpayer claimed i n h i s or her
appeal), the respondent's argument ( usually the county assessor or the
Department of Revenue ' s defense of the assessed va I ua t i on , and the
board's f i n d i n g or decision. The board has developed numbered codes
which, when entered i n t o the computer, generate " canned" n a r r a t i v e s which
correspond ( t o the extent possible) to the selected p e t i t i o n e r and
respondent arguments. In a d d i t i o n , the board's conclusion or decisions
are also generated from a computer code which corresponds to a
p r e w r i t t e n , canned n a r r a t i v e . ( The board improved and expanded i t s
s e l e c t i o n of these n a r r a t i v e s i n 1988 and recently stated i t has over
800 n a r r a t i v e s . ) However, since the s e l e c t i o n of decision codes w i l l not
adequately f i t every case, a few decisions are not computer- generated i n
f u l l and must be custom d r a f t e d .
W r i t t e n f i n d i n g s and conclusions do not explain basis o f decisions -
The standard n a r r a t i v e s which state the board's decisions are b r i e f ( most
are only three to f i v e l i n e s ) , worded generally, and d o n ' t explain the
reasons for the board's decisions. For example, the f o l l o w i n g n a r r a t i v e
i s frequently used when the board makes no change i n the assessed
v a l u a t i o n :
" The board finds that the property i s c o r r e c t l y valued, and the
value set by the county i s upheld. The f u l l cash value for
future years i s to be based upon standard appraisal methods and
techniques."
I n t h i s case, both the appellant taxpayer and county assessor may have
presented evidence at the hearing supporting t h e i r arguments. The
appellant t y p i c a l l y presents evidence that the valuation i s excessive
whi le the assessor presents evidence to show that the property i s
c o r r e c t l y valued. The board's decision statement, however, does not
comment on the evidence presented by the p a r t i e s o r e x p l a i n why the
county assessor's argument p r e v a i l e d .
Even i n more complex cases board decisions tend to be b r i e f and lack
d e t a i l . For example, i n a case i n v o l v i n g a telecommunications company
which was c e n t r a l l y assessed by the Department of Revenue, the company
and the department were over $ 1.2 b i l l i o n apart i n t h e i r assessment of
the company's t o t a l system value. DOR estimated the company's value at
approximately $ 3.28 b i l l i o n whereas the company pegged i t s value at about
$ 2.06 b i l l i o n . Using the same a l l o c a t i o n f a c t o r , DOR valued the
company's Arizona property at $ 44.7 m i l l i o n while the company estimated
i t s Arizona property at about $ 28 m i l l i o n . I n a three- line statement,
the board set the company's t o t a l system value at approximately $ 2.7
b i l l i o n , and the value of i t s Arizona property at almost $ 37 m i l l i o n .
Although the b o a r d ' s f i g u r e s d i f f e r s i g n i f i c a n t l y from both the company's
and DOR's, the board's decision does not explain the r a t i o n a l e for
a r r i v i n g at the v a l u a t i o n .
More than h a l f the taxpayers we surveyed who appeared before the board
f e l t they did not adequately understand the basis of the b o a r d ' s d e c i s i o n
i n t h e i r case. We contacted by telephone a small sample of taxpayers who
had f i led an appea I i n 1989, had a hear i ng , and had rece i ved a dec i s i on
from the board. Respondents were asked how we1 l they understood the
basis of the board's decision. F i f t e e n of the 28 respondents did not
feel they understood the basis of the decision.
Appellants whose cases were heard on- the- record were even more l i k e l y to
s t a t e that they d i d not understand the basis of the board's decision.
Twenty of 28 respondents whose cases were heard on- the- record i n 1988 d i d
not feel they understood the basis of the board's decision. While
neither sample size was large enough t o p r o j e c t t o the e n t i r e population
of appellants, responses suggest that taxpayers would welcome more
information explaining the board's decisions.
Taxpayers are not the only p a r t i e s who would b e n e f i t from more
informative explanations. The Department of Revenue has also complained
about the lack of d e t a i l i n board decisions. A DOR o f f i c i a l stated that
the board's Finding of Facts and Conclusions of Law " are so vague i t i s
generally not possible to determine how the value was derived."
Other states - By contrast, s i m i l a r agencies i n some other states
include more d e t a i l and explanation i n t h e i r w r i t t e n decisions. The
Washington State Board of Tax Appeals, for example, d e t a i l s the unique
facts p e r t a i n i n g t o each appeal and provides analyses and explanations of
decisions i n three to four pages of n a r r a t i v e . Decisions of the Colorado
Board of Assessment Appeals are about three pages long and both comment
on the facts and evidence presented by the p a r t i e s , and provide i n s i g h t
i n t o the r a t i o n a l e used i n a r r i v i n g at the d e c i s i o n . Two other states we
contacted provide even lengthier and more detai led w r i t t e n decisions.
However, not a l l are comparable due to lower caseloads and d i f f e r e n t time
f rames.
Some Appellants Received
No Written Explanation
While most taxpayers received w r i t t e n decisions which lacked d e t a i l , some
taxpayers received no n a r r a t i v e explanations at a l l i n v i o l a t i o n of
A. R. S. 341- 1063 and Board Rule R16- 2- 120. Fi ndi ngs of Fact and
Conclusions of Law were not prepared and sent to 553 of the appellants
whose cases were heard by the board at the close of the 1988 tax season.
The d i v i s i o n was so overloaded w i t h cases i t d i d not have time to
generate t h i s information.
! ECJMENDAT l ONS
In addressing the Board's time and resource c o n s t r a i n t s noted i n Finding
I , the L e g i s l a t u r e should consider the Board's need t o :
1. Include more information i n i t s w r i t t e n decisions explaining the
basis of i t s decisions.
2. Comply w i t h A. R. S. $ 41- 1063 and Board Rule R16- 2- 120 and include
Findings of Fact and Conclusions of Law i n a l l w r i t t e n decisions.
FINDING I V
DIVISION ONE IS NOT COMPLYING WITH
NOTICE REQUIREMENTS
Problems coping w i t h the board's workload have also been at least
p a r t i a l l y responsible for f a i l u r e s to comply w i t h hearing notice
requirements, D i v i s i o n One of the Board of Tax Appeals does not always
provide adequate n o t i c e of hearings. The d i v i s i o n has f a i l e d to provide
appellants due process by deciding some cases based only on w r i t t e n
arguments without providing p a r t i e s the proper opportunity t o e i t h e r
exercise o r waive t h e i r r i g h t to personally appear at the hearing. In
a d d i t i o n , the d i v i s i o n usually does not provide at least 20- days notice
of scheduled hearings as required by law.
Some Cases Handled On- The- Record
May Have Violated Due Process Requirements
and Could P o t e n t i a l l y Result i n Monetary L i a b i l i t y
In 1988 the board decided some of i t s cases based s o l e l y on w r i t t e n
arguments without f o l l o w i n g i t s rules which allow p a r t i e s to object to
t h i s procedure. I n some instances p a r t i e s were not provided the f u l l
10- day period to o b j e c t , and i n others the p a r t i e s were given no
o p p o r t u n i t y t o o b j e c t . These cases v i o l a t e d not only the board's own
r u l e s , but also due process requirements of State and federal laws.
I n l i e u of holding a hearing, the board may decide appeals on- the- record
when 1) both p a r t i e s request i t or 2) when the board orders a hearing
on- the- record and no objection i s made w i t h i n 10 days. On- the- record
( OTR) means that a l l arguments w i l l be i n w r i t i n g , no oral testimony w i l l
be taken, and neither party w i l l appear before the board. Over 1,472
cases were heard on- the- record i n 1988.
Although the board's rules allow for persons to object to an OTR w i t h i n
10 days, many were not provided 10- days notice of the board's i n t e n t i o n s
to handle the case on- the- record.") In 1988, only 42 percent of the
OTRs scheduled provided at least 10 days between the date the notice was
generated and the date the OTR was scheduled. However, some of these
persons d i d not a c t u a l l y have 10 days to object when m a i l i n g time i s
taken i n t o account. Even i f the p a r t i e s had objected the board could not
have accommodated them.
The board decided many 1988 appeals on- the- record because the volume of
appeals exceeded a v a i l a b l e time and resources. The board scheduled many
cases to be handled on- the- record because the members did not have time
to hold hearings given t h e i r resource c o n s t r a i n t s . In a d d i t i o n , the
board's c l e r k stated that on some days, many more tax agent cases were
scheduled for hearing than could possibly be heard. When the board ran
out of time to hear scheduled cases, these cases would be handled
on- the- record without g i v i n g p a r t i e s 10- day advance w r i t t e n notice or the
opportunity to o b j e c t .
Serious legal r a m i f i c a t i o n s could r e s u l t from the board's f a i l u r e t o g i v e
adequate notice and opportunity t o o b j e c t to handling cases
on- the- record. L e g i s l a t i v e Counci I , i n an opinion dated June 7, 1989,
noted that the board i s subject to Arizona's Administrative Procedures
Act ( A . R . S 941- 1001 et seq.) which requires that p a r t i e s be given the
r i g h t to submit evidence i n open hearing and to cross- examine - two
procedural requirements not met by on- the- record reviews. L e g i s l a t i v e
Counc i I noted that " an on- the- record decision does not const i tute a
hearing or meet the r e q u i s i t e s of due process i f there i s no opportunity
f o r p a r t i e s to o b j e c t . " They concluded that i f p a r t i e s object to the
board's procedures, the courts would probably require the board to rehear
the cases. Further, the p a r t i e s may be e n t i t l e d to obtain t h e i r
attorneys' fees. Because the issue involves due process and may a f f e c t
( 1 ) Even i f the d i v i s i o n provides 10- days n o t i c e p r i o r t o reviewing the case
on- the- record, p a r t i e s may not r e a l i z e they can o b j e c t t o t h i s procedure. The
l e t t e r accompanying the OTR n o t i c e makes no reference t o a person's r i g h t t o object
t o t h i s type proceeding. A copy of the d i v i s i o n ' s r u l e s , which i d e n t i f i e s p a r t i e s '
r i g h t t o o b j e c t to OTRs, i s enclosed w i t h the l e t t e r . However, the d i v i s i o n ' s
procedures would be improved i f the l e t t e r made reference t o the 10- day period.
persons' property i n t e r e s t s , p a r t i e s have a c o n s t i t u t i o n a l claim under
federal law for due process safeguards. The federal law also allows
aggrieved p a r t i e s to o b t a i n a t t o r n e y s ' fees.
Hearing Notices Are
Not Timely
F u r t h e r , D i v i s i o n One's current p r a c t i c e of scheduling hearings two weeks
i n advance does not allow s u f f i c i e n t time to n o t i f y p a r t i e s involved.
A. R. S. 541- 1061 requires n o t i c e be given a t least 20 days p r i o r to the
date set for the hearing ( unless otherwise provided by law).")
However, i n 1988 only 11 percent of the hearings scheduled ( 270 of the
2,459 scheduled for hearing) provided at least 20 days not i c e t o the
p a r t i e s involved. '" On average, persons were n o t i f i e d about 13 days
p r i o r to the hearing."' This may not be adequate n o t i c e f o r some
persons to attend t h e hearing.
The c l e r k believes p r o v i d i n g 20- days n o t i c e i s i m p r a c t i c a l g i v e n the
l i m i t e d time frame the board has to hear appeals, the volume of appeals
that must be scheduled, and space a v a i l a b i l i t y . I n a d d i t i o n , the date
the case i s f i l e d impacts the board's a b i l i t y t o p r ~ v i d e 20- days n o t i c e .
For example, since the board must hear and decide most cases by J u l y 25,
a case received i n l a t e June may be imposs i b le to schedu le w i t h 20- days
n o t i c e . However, i f a p a r t y l a t e r objected and could prove t h a t the
shortened notice a f f e c t e d h i s or her abi l i t y to prepare for the case or
i n some way hurt the case, the appeal cou I d be remanded by a court back
to the d i v i s i o n for a rehearing.
) Appeals i n v o l v i n g personal property, p r i v a t e car companies, and equal i z a t i on orders
a l l provide f o r s h o r t e r hearing notice. However, these type of appeals probably
accounted f o r l e s s than 100 o f the 4,299 appeals i n 1988.
(*) A s t a t i s t i c a l l y v a l i d sample of 352 cases was randomly selected from the population
of 4,299 appeals f i l e d i n 1988. O f the 352 cases selected, 223 were scheduled f o r
a hearing and 114 were scheduled to be heard OTR. ( F i f t e e n of the 352 cases were
withdrawn p r i o r t o being scheduled or were not t i m e l y f i l e d . ) The sample has a
r e l i a b i l i t y of 25 percent a t the 95 percent confidence l e v e l .
( 3) This " average n o t i c e time" i s the number of days between the date the n o t i c e was
generated and the date o f the hearing, and does not take i n t o account time i n the
mai 1.
RECOWENDATION
D i v i s i o n One of the Board of Tax Appeals should adopt procedures to allow
for adequate n o t i c e t o p a r t i e s of cases scheduled for hearing and for
cases to be heard on- the- record. I n a d d i t i o n , the board should hold
hearings i n cases where p a r t i e s object to an OTR proceeding.
FINDING V
BOARD MEMBER COMPENSATION
IS INADEQUATE
In Maricopa County where c u s t o d i a l workers make nearly $ 7 per hour, and
s a l a r i e s f o r laborers and groundskeepers average over $ 8 an hour, board
members responsible for decisions i n v o l v i n g m i l l i o n s of d o l l a r s i n tax
revenues make an average of $ 6.25 an hour. Given the work load and time
required of members of the State Board of Tax Appeals, such pay levels
make board service a f i n a n c i a l hardship. Compensation levels are well
below those paid t o i n d i v i d u a l s i n many other occupations, to the board's
hearing o f f i c e r s , and to members of s i m i l a r boards i n other s t a t e s .
Board Service Requ i res
a Major Time Comnitment
Membership on D i v i s i o n One of the State Board of Tax Appeals requires a
s i g n i f i c a n t time commitment because of the enormous workload. D i v i s i o n
One received 4,299 property tax appeals i n 1988 and has received more
than 6,000 appeals so far i n 1989. In an e f f o r t to accommodate the
rapidly growing caseload, board members worked from 77 to 160 days i n
f i s c a l year 1988. Furthermore, during the tax appeals season, board
members work almost f u l l - t i m e . Hearings are scheduled throughout the day
on nearly every a v a i l a b l e day during t h i s four- month period. In 1988,
hearings were scheduled on 33 days i n May and June alone. On days when
hearings are not scheduled and i n between hear i ngs , board members review
evidence and make decisions regarding appeals. The d i v i s i o n ' s board
members frequently work more than e i g h t hours a day and may work on
weekends as we l I .
In contrast, the amount of time required of i n d i v i d u a l s serving on other
Arizona boards tends to be much more l i m i t e d . For instance, members of
the Racing Commission meet once a month on average. These meetings l a s t
approximately four hours. The members of the Technical R e g i s t r a t i o n
Board meet q u a r t e r l y , . hold teleconferences once or twice per month, and
hold hearings on occasion. The Liquor Board t y p i c a l l y meets two days per
month and holds panel meetings p e r i o d i c a l l y .
Members of the State Board of Tax Appeals are responsible for making
important decisions concerning Arizona's tax revenues. In 1988, nearly
$ 109 mi l l ion i n tax revenue was generated from p r o p e r t i e s whose
valuations were appealed to D i v i s i o n One. Some of the cases received by
the d i v i s i o n are very technical and involved. For instance, the board
must determine the value of property owned by large corporations. These
companies may have landholdings scattered throughout the s t a t e . To make
appeals decisions, board members must have a good understanding o f
taxation, property v a l u a t i o n , and a p p r a i s a l .
Compensation Provided to
Board Members I s Inadequate
Despite the number of hours worked by D i v i s i o n One's board members and
the complexity of the subject area, they receive approximately $ 6.25 per
hour on average. "' This level of compensation i s inadequate when
compared to the s a l a r i e s of other occupations, the board's hearing
o f f i c e r s , and board members i n other s t a t e s . As a r e s u l t of the low pay
and substantial time requirement, i t has been d i f f i c u l t for the
Governor's Office to a t t r a c t board members.
The Arizona Department of Economic S e c u r i t y ' s Maricopa County Employer
Wage Survey for 1988 i n d i c a t e s that among the occupations surveyed, only
food service workers, nursing a s s i s t a n t s , and f i l e c l e r k s make less than
members of the Board of Tax Appeals. Clerk t y p i s t s , s e c r e t a r i e s , and
s e c u r i t y o f f i c e r s a l l have a higher weighted hourly average wage than
board members. ( 2)
( 1 A. R. S. $ 42- 171G provides t h a t board members receive compensation of $ 50 per day
plus travel and other expenses. Because board members generally work 8 hours or
more per day during the appeals season, the pay t r a n s l a t e s t o an hourly r a t e of
$ 6.25 per hour o r l e s s when overtime i s involved.
( 2 ) The weighted hourly average wage paid i s the weighted mean of a l l people employed
i n the p a r t i c u l a r occupation among the f i r m s surveyed. Data were c o l l e c t e d from
firms with 300 o r more employees.
Hearing o f f i c e r s employed by the board on a contract basis make
s u b s t a n t i a l l y more than the board members they serve. Hearing o f f i c e r s
are u t i l i z e d during the property tax appeal season to conduct research,
take testimony, and make recommendations to the board concerning the
cases they hear. For t h e i r s e r v i c e s , these hearing o f f i c e r s receive
between $ 25 and $ 32 per hour. The board makes p e r i o d i c use of an
attorney who i s paid at a rate of $ 60 per hour. ( 1 )
A survey of s i m i l a r tax appeal boards i n other states suggests that board
members i n other states receive s u b s t a n t i a l l y more compensation. As
Table 4 ( see page 32) c l e a r l y shows, Arizona's board members receive less
pay than i s provided to o f f i c i a l s i n any of the seven s t a t e s surveyed.
I f the caseloads of these agencies are considered, the discrepancy i n pay
i s even more g l a r i n g . For example, although the Colorado Board of
Assessment Appeals received only 1,855 property tax appeals i n 1988 and
i s not subject to s t a t u t o r y time c o n s t r a i n t s , board members are paid
nearly three times as much as Arizona's board members. I l l i n o i s '
Property Tax Appeal Board members earn $ 28,000 a n n u a l l y , y e t i n 1988
received approximately the same number of appeals as Arizona's
0oard."' The pay discrepancy i s even g r e a t e r c o n s i d e r i n g that
l l l i n o i s board members a c t u a l l y hear very few cases. Hearing o f f i c e r s
hear most of the cases and prepare w r i t t e n decisions for the board's
approval.
One o f the current members of the State board i s also an a t t o r n e y , b u t as noted
before . on1 y receives $ 50 per day.
( 2) I l l i n o i s board members are a1 so part- time.
TABLE 4
COMPARISON OF COMPENSATION LEVELS AND WORKLOAD
IN ARIZONA AND OTHER STATES
State
Ar i zona
Ful I- time Number o f Level o f
or Part- time Appeals ( a ) Compensation
Part- time 4,299 $ 50Iday
Nevada Part- time 7 2 60/ day
I daho Par t- t ime 137 75/ day
South Dakota Part- time 146 75/ day
Colorado Par t- t ime 1 ,855 140Iday
I I l i n o i s Part- time 4,357 28,00O/ year
Washington Ful I- time 1 ,873 55,404/ year
Kansas F u l I - t i m e 6,321 59,208/ year
( a ) Colorado, I l l i n o i s , and Washington appeals are for fiscal year 1988. Arizona,
Idaho, Kansas, Nevada, and South Dakota appeals are for calendar year 1988.
Source: A u d i t o r G e n e r a l ' s survey of tax appeal boards i n other states
E x i s t i n g compensation l e v e l s make i t d i f f i c u l t to a t t r a c t board members.
An executive a s s i s t a n t t o the Governor i n d i c a t e d that i t was very
d i f f i c u l t to f i n d candidates w i l l i n g to serve on the board because of the
s u b s t a n t i a l time requirement and low pay. I n 1988, f o r example, D i v i s i o n
One c a r r i e d one vacancy throughout most of the tax appeal season. There
was also a vacancy i n D i v i s i o n Two from January u n t i l July 1989. The
executive a s s i s t a n t to the Governor responsible f o r overseeing the board
believes t h a t board member compensation should be raised to approximately
$ 250 per day to make i t easier to a t t r a c t q u a l i f i e d candidates.
L e g i s l a t i o n was introduced during the 1989 regular session to address, i n
p a r t , the problem of inadequate pay, but the b i l l d i d not pass. Senate
Bi l l 1256 would have increased board member pay, which has not changed
since 1967, to $ 150 per day.
RECOWENDATION
The L e g i s l a t u r e should consider increasing the level of compensation
received by members of the State Board of Tax Appeals. This would
f a c i l i t a t e the Governor's e f f o r t s t o a t t r a c t q u a l i f i e d candidates t o f i l l
vacancies on the board.
32
OTHER PERTINENT INFORMATION
D i v i s i o n One's Decision and D e l i b e r a t i o n
Procedures Violated Open Meeting Law
During the course of our audit we determined that D i v i s i o n One's process
f o r d e l i b e r a t i n g and deciding cases was not i n compliance w i t h open
meeting law requirements. However, D i v i s i o n One recently i n s t i t u t e d
procedures which should b r i n g i t i n t o compliance.
P r i o r to June 30, 1989, D i v i s i o n One deliberated and decided cases as
time allowed. T y p i c a l l y , a case would be scheduled for hearing, and
p a r t i e s would present t h e i r evidence at that time. However, i n most
cases a decision was made at some l a t e r unscheduled date. A t the time of
the hearing, appellants were not informed when the board would meet to
d e l i b e r a t e and decide t h e i r case. Instead, due to the large caseload,
the board discussed and decided cases whenever they had a spare moment.
Although the board posted a general n o t i c e s t a t i n g that i t would r u l e on
each p e t i t i o n i n an open meeting w i t h i n 30 days of the hearing and
advised persons i n t e r e s t e d i n attending t h i s meeting to contact the c l e r k
t o o b t a i n a " reasonably accurate date and time," i t r e a l l y had no
schedule or agenda for when the members wou Id be discussing and deciding
a c e r t a i n case.
D i v i s i o n One's p r a c t i c e of holding unscheduled meetings to d e l i b e r a t e and
decide cases v i o l a t e d open meeting law requirements. A. R. S. $ 38- 431 et
seq, requires q u a s i - j u d i c i a l bodies to post n o t i c e of o f f i c i a l meetings
and e s t a b l i s h agendas. The open meeting law applies to a l l p u b l i c bodies
and consequently applies to a l l meetings of D i v i s i o n One of the Board of
Tax Appeals, i n c l u d i n g meetings held to discuss and decide
appeal s . ") Consequently, D i v i s i o n One's f a i l u r e to post appropriate
( 1) I n 1975 the Attorney General concluded that a l l discussions, d e l i b e r a t i o n s ,
considerations, or consultations among a m a j o r i t y of members of a governing body
. which may foreseeably require a f i n a l a c t i o n o r a f i n a l d e c i s i o n must be conducted
i n open meeting unless an executive session i s authorized.
notice and agendas f o r d e l i b e r a t i n g and deciding cases v i o l a t e d the open
meeting law requirements. S p e c i f i c a l l y , D i v i s i o n One f a i l e d t o g i v e at
least 24 hours n o t i c e i n advance of d e l i b e r a t i o n s and d i d not post
decision agendas.
The i n s u f f i c i e n t n o t i c e and lack of agenda pose p o t e n t i a l legal
r a m i f i c a t i o n s . Although the board maintains that these d e l i b e r a t i o n and
decision meetings were open to the p u b l i c , the board did not do enough to
a l e r t the general p u b l i c of these meetings. For example, 48 o f 60
p e t i t i o n e r s we surveyed were not aware they could attend the board's
d e l i b e r a t i o n and decision meeting; however, 77 percent expressed i n t e r e s t
i n attending these meetings. "' Thus, the board's f a i lure to provide
s u f f i c i e n t notice of these meetings deprived the p u b l i c o f the r i g h t to
be noticed and attend these meetings i f desired. Furthermore, the
board's f a i l u r e to n o t i c e these meetings creates an opportunity for the
board's decisions to be challenged, which may then n u l l i f y and void a l l
decisions made p r i o r to June 30, 1989.
After consulting w i t h the Attorney General's o f f i c e , the board has
i n s t i t u t e d procedures which should b r i n g i t i n t o compliance w i t h open
meeting law requirements. The board plans to discuss and decide cases
immediately f o l l o w i n g each board hearing. I n cases where hearing
o f f i c e r s preside, the p a r t i e s w i l l be v e r b a l l y n o t i f i e d at the hearing of
a date and time at which the board w i l l meet to discuss and decide t h e i r
case.
( 1 ) Auditor General s t a f f randomly selected and surveyed 60 persons who had appeared
before t h e board i n 1989 t o appeal t h e i r property values.
AREA FOR FURTHER AUDIT WORK t
Our audit work focused on D i v i s i o n One o f the State Board of Tax Appeals
because of the magnitude of the caseload and the extreme seasonality of
the work. However, during the course of our a u d i t we found that D i v i s i o n
Two may also be inadequately funded and understaffed. The d i v i s i o n
consists of the c l e r k , a hearing o f f i c e r , and a s e c r e t a r y . I n f i s c a l
year 1988 the d i v i s i o n ' s 147 cases involved $ 13.6 m i l l i o n i n p o t e n t i a l
revenues for the S t a t e . However, the d i v i s i o n only decided and resolved
88 of the 147 cases. Board members and s t a f f believe t h a t the d i v i s i o n
i s understaffed and not adequately funded to meet the workload.
Further a u d i t work i s needed to determine u t i l i z a t i o n and e f f i c i e n c y o f
current s t a f f and the d i v i s i o n ' s funding needs.
SUNSET FACTORS
In accordance w i t h A. R. S. 541- 2354, the L e g i s l a t u r e should consider the
f o l l o w i n g 12 factors i n determining whether the Board of Tax Appeals
should be continued or terminated.
I. O b j e c t i v e a n d p u r p o s e i n e s t a b l i s h i n g t h e b o a r d
The State Board o f Property Tax Appeals was established i n 1967 as
an independent agency w i t h f u l l power to equalize the valuation of
a l l property throughout the s t a t e and to hear and decide valuation
appeals. In 1973, the name of the board was changed to the State
Board of Tax Appeals t o r e f l e c t a d d i t i o n a l d u t i e s i n v o l v i n g sales,
income, and other type tax appeals. The board i s a q u a s i - j u d i c i a l
agency and consists of two d i v i s i o n s , known as D i v i s i o n One and
D i v i s i o n Two, w i t h separate j u r i s d i c t i o n s and equal power. Each
d i v i s i o n has three appointed board members.
According to agency personnel, the purpose f o r e s t a b l i s h i n g
D i v i s i o n One was to provide an independent appeals process r e l a t i n g
to the ad valorem taxation of p r o p e r t y . D i v i s i o n One's major
o b j e c t i v e i s to provide taxpayers, county assessors, and the
Department of Revenue w i t h an e f f e c t i v e , o b j e c t i v e , and
c o s t - e f f e c t i v e method of appealing real and personal property
valuations and/ or c l a s s i f i c a t i o n s .
D i v i s i o n Two was established to provide taxpayers w i t h an
independent appeal process for adverse decisions from the
Department o f Revenue which do not i n v o l v e r e a l e s t a t e t r a n s f e r or
the v a l u a t i o n , c l a s s i f i c a t i o n , and taxation of property,
Consequently, D i v i s i o n Two provides an avenue for taxpayers to
appeal sales, income, and other type taxes.
2. The effectiveness w i t h which the board has met i t s o b j e c t i v e and
purpose and the e f f i c i e n c y w i t h which i t has operated
D i v i s i o n One's effectiveness i n meeting i t s o b j e c t i v e and purpose
has been hampered because i t s appeals caseload has t r i p l e d while
i t s resources have essent i a l l y remained the same ( see l nt roduct ion
and Background, page 1 ) . The d i v i s i o n i s also hampered by the
severe time c o n s t r a i n t s placed on i t . Almost a l l appeals are
received and heard between A p r i l 1 and July 25 each year.
3. The extent to which the board has operated in the public interest
The State Board of Tax Appeals generally operates i n the public
i n t e r e s t by providing an i m p a r t i a l and inexpensive method to
resolve tax disputes. However, D i v i s i o n One has not operated i n
the p u b l i c i n t e r e s t i n some instances to the extent i t has f a i l e d
t o ( 1 ) p r o v i d e adequate n o t i c e of hearings, ( 2) provide adequate
explanations of i t s decisions, and ( 3) comply w i t h open meeting law
requirements regarding d e c i s i o n d e l i b e r a t i o n s .
4. The extent to which rules and regulations promulgated by the board
are consistent with the l e g i s l a t i v e mandate
The rules and regulations promulgated by the B o a r d ' o f Tax Appeals
and D i v i s i o n s One and Two are consistent w i t h i t s l e g i s l a t i v e
mandate. However, both d i v i s i o n s are in the process of revising
t h e i r rules and regulations to c l a r i f y language and delete
unnecessary p r o v i s i o n s .
5. The extent to which the board has encouraged input from the pub1 ic
before promulgating i t s rules and regulations and the extent to
which i t has informed the public as to i t s actions and their
expected impact on the public
The Board o f Tax Appeals has three chapters of rules and
regulations. One chapter p e r t a i n s t o the f u l l 6- member board,
another chapter addresses D i v i s i o n One operations, and the t h i r d
s p e c i f i c a l l y addresses D i v i s i o n Two operations. The board has not
made any changes addressing the f u l l board member rules and
regu I at ions s i nce 1975. However , D i v i s i on One ru les and
regulations were last revised i n 1986, and D i v i s i o n Two made
general r e v i s i o n s to i t s rules and regulations i n 1980. Public
hearings were held at those times to receive i n p u t .
6. The extent t o which the board has been able to i n v e s t i g a t e and
resolve complaints that are w i t h i n i t s j u r i s d i c t i o n
The board i s not a regulatory agency, and therefore, t h i s factor
does not apply.
7. The extent t o which the Attorney General or any other applicable
agency of State government has the a u t h o r i t y to prosecute actions
under enabling l e g i s l a t i o n
The board i s not a regulatory agency, and therefore, t h i s factor
does not apply.
8. The extent t o which the board has addressed d e f i c i e n c i e s i n i t s
enabling s t a t u t e s which prevent i t from f u l f i l l i n g i t s s t a t u t o r y
mandate
L e g i s l a t i o n t o increase the number of board members and board
member pay was introduced i n the 1989 session but did not pass.
9. The extent t o which changes are necessary i n the laws o f the board
t o adequately comply w i t h factors l i s t e d i n the Sunset Law
Based on our a u d i t work, we recommend that the Legislature consider
the following changes to BOTA's s t a t u t e s .
a Amend board s t a t u t e s t o r e q u i r e a p p e l l a n t s t o pay a f i l i n g fee.
( See Finding l l , pages 15 through 19.)
r Provide the board w i t h clear s t a t u t o r y a u t h o r i t y t o raise
valuations to f u l l cash value where appropriate. ( See Finding
I I , pages 15 through 19.)
r Amend board s t a t u t e s t o increase board member compensation. ( See
Finding V , pages 29 through 32. )
In a d d i t i o n , the L e g i s l a t u r e should consider amending the current
appeals f i l i n g and hearing time schedule set by law to allow
hearings throughout the year. However, t h i s change would need to
be considered i n l i g h t of i t s impact on other e n t i t i e s and local
budgeting p r a c t i c e s . ( See Finding I , pages 7 through 14.)
10. The extent t o which the termination o f the board would
s i g n i f i c a n t l y harm the p u b l i c L e a l t h , safety, or welfare
Although the Board of Tax Appeals i s not essential to protect the
p u b l i c welfare, i t does provide a valuable s e r v i c e . The board
provides taxpayers, county assessors, and the Department of Revenue
an i m p a r t i a l and inexpensive method to seek a d m i n i s t r a t i v e
r e s o l u t i o n t o p r o p e r t y , sales, use, and other type tax appeals.
According to board members, i f D i v i s i o n One were eliminated,
inequitable treatment of taxpayers would r e s u l t i n taxpayers paying
erroneous and/ or excessive taxes. D i v i s i o n Two maintains that a
tremendous f i n a n c i a l burden would be placed on taxpayers because
they would then have to pay the disputed amount of taxes ( an
average of $ 80,000-$ 90,000) i n a d d i t i o n to f i l i n g fees before they
could receive an i m p a r t i a l review. Both d i v i s i o n s maintain t h a t
p a r t i e s involved would have to expend more i n l i t i g a t i o n costs and
that the courts would be burdened w i t h an increased caseload.
11. The extent t o which t h e l e v e l o f r e g u l a t i o n exercised by the board
i s appropriate and whether less or more s t r i n g e n t levels of
r e g u l a t i o n would be appropriate
The Board o f Tax Appeals has no regulatory a u t h o r i t y , and
therefore, t h i s factor does not apply.
12. The extent t o which the board has used p r i v a t e contractors i n the
performance o f i t s d u t i e s and how e f f e c t i v e use o f p r i v a t e
c o n t r a c t o r s c o u l d be accomplished
D i v i s i o n One c u r r e n t l y contracts for hearing o f f i c e r s . The
d i v i s i o n began using the services of one outside contracted hearing
o f f i c e r during the 1987 appeals season. In 1989 the d i v i s i o n
awarded f i v e contracts for hearing o f f i c e r s . However, budgetary
constraints w i l l only permit the d i v i s i o n t o a c t u a l l y employ three
hearing o f f i c e r s on a l i m i t e d basis. The seasonal nature of
D i v i s i o n One's workload makes contracting out for t h i s service
very c o s t - e f f e c t i v e and e f f i c i e n t .
DIVISION I - ROOM 332
Property
( 602) 542- 5462
DIVISION II - ROOM 319
Income, Sales, Use
( 602) 542- 3287
1645 W. JEFFERSON ST.
PHOENIX. ARIZONA 85007
October 11, 1989
M r . Douglas R. Norton
Auditor General
Office of the Auditor General
2700 North Central Avenue, Suite 700
Phoenix, Arizona 85004
Dear M r . Norton:
Attached is the response of the State Board of Tax Appeals, Division One, to the
performance audit of our agency.
We want to thank you for pointing out to the Legislature the impact on our agency
of the enormity of our caseload. As we stated in our response, we are supportive
of your proposals to deal with t h i s caseload.
Sincerely yours,
Barbara E. Fisher, Chair
Division One
Attachment:
DIVISION I - ROOM 332
Property
( 602) 542- 5462
DIVISION II - ROOM 319
Income, Sales, Use
( 602) 542- 3287 *
1645 W. JEFFERSON ST.
PHOENIX, ARIZONA 85007
RESPONSE TO THE PERFORMANCE AUDIT
The Board of Tax Appeals, Division One, was constituted t o hear approximately
1500 property tax appeals each year. The work load began in April and had to
be concluded by July 25 when the Board ceases t o have jurisdiction.
In 1988, t h i s Board was confronted with over 4000 appeals and in 1989 the number
was over 6200; however the deadline for hearing these appeals has remained
unchanged.
The remarkable f a c t is t h a t the Board accomplished its task each year. It did
so with a volunteer c i t i z e n Board and hardworking State employees a l l of whom
gave f a r more than it was f a i r t o ask. It was a heroic e f f o r t .
The Auditor General's report chronicles our history and our problems. It clearly
provides the most cogent discussion of the impact of tax agents on the State's
tax appeals system t h a t has been written.
This report also points out that the Board has not s t r i c t l y complied with some
rules such as the 20 day n o t i f i c a t i o n r u l e t o taxpayers and it is c r i t i c a l of
lack of d e t a i l contained in the decisions sent out t o taxpayers.
When the Board had 1500 appeals each year, it could comply s t r i c t l y with its
rules. But there is a choice t o be made. We cannot hear the volume of cases
now presented to us and comply with all the statutory rules. S t r i c t compliance
requires t h a t cases be l e f t unheard and undecided.
It may also be true that i f the number of appeals exceeds 6000 in 1990, cases
w i l l be l e f t unheard and undecided. The Board believes that we have reached and
exceeded our maximum capacity to hear and decide cases within our existing budget
and resources.
Finding I
We agree that the seasonal nature of our work makes it d i f f i c u l t t o hear and
decide the rapidly growing caseload.
1. We disagree that some taxpayers were given 10 minute hearings in
1989. Cases were scheduled a t 10 minute i n t e r v a l s b u t given whatever time
it took. This was only done with agents - i . e . those who had numerous
appeals with the same issue who could simply say " This is another case
where the issue is concurrent ownership." We could then review the
evidence of concurrent ownership quickly and move on. It is not believed
that anyone in 1989 felt they didn't have enough time t o present their
case. The Board has never told someone they could not present a l l t h e i r
evidence, only requested they not repeat t h e i r arguments. Every taxpayer
was asked i f they had any additional evidence. Some locally assessed
appeals ( hearings) took more than an hour. Centrally valued cases often
take a whole day.
2. We agree that we could not and did not reschedule any cases.
3. We disagree that decisions t o taxpayers were untimely in 1989 and
there has been no evidence of t h i s .
4. We did not hear cases on- the- record in 1989 unless the taxpayer
failed to appear or on- the- record treatment was requested by the taxpayer.
Finding 11
We agree t h a t f i l i n g fees and other appropriate measures should be used to reduce
the number of frivolous appeals.
1. We would like t o see the funds from f i l i n g fees used t o carry out
the appeal process.
2. We would like t o have clear statutory authority t o set f u l l cash
values, whether that means raising or lowering values. Our authority t o
raise values, unless appealed by the Assessor or Department of Revenue,
is unclear.
3. We would like to have t h e s t a t u t o r y authority t o assess costs against
persons f i l i n g frivolous appeals.
Finding I11
The existing decisions meet legal requirements for findings of fact and
conclusions of law. They were approved, as such, by the Attorney General's
office. We are working t o expand our computer generated system to give more
d e t a i l about the basis for our decision.
1. The sheer number of appeals requires use of a computer generated
decision. However, we can and w i l l expand t h a t system to increase the
information provided t o the taxpayer.
2. The basis of the evidence presented appears i n our decisions. It
is provided under the categories petitioner's position and respondent's
position.
Finding IV
On- the- Record Appeals:
In 1988 the Board notified tax agents t h a t each agent would have a given number
of hearing days t o present t h e i r cases and that the ones not heard would be heard
on- the- record. Each agent was notified of his/ her dates and the dates for the
decisions of the on- the- record cases.
This has not been done i n 1989 and w i l l not be done again as it was an
unsatisfactory method of dealing with the excess caseload. In 1989, every case
was heard unless the taxpayer requested an on- the- record hearing or did not
appear for hearing at the time of notification.
As t o the 20 day notice requirements, many of the taxpayers who do not receive
20 days written notice receive actual notice by telephone. The sheer volume of
cases which must be scheduled makes it very d i f f i c u l t to give every taxpayer the
f u l l 20 days by mail.
Finding V
The Board agrees that $ 50 per day is inadequate compensation for its members.
This Board actuallyhears and decides the cases and should receive $ 150 per day
served as suggested by the Auditor General's report.
Other Pertinent Information
The Board has complied with the Open Meeting Law. The posting of the notice and
the accessible decision making location were reviewed by the Attorney General
on two occasions for compliance with the Open Meeting Law. The Auditor General
s t a f f is second guessing the Attorney General's approvals.
However, once t h i s disagreement was brought to t h e a t t e n t i o n of the Board, we
decided to put an end to the conflicting opinions by making decisions from the
bench. The Board now makes decisions immediately following the hearing unless
there is material which must be studied. This eliminates the problem and w i l l
be our future method of deciding cases because we have found it to be very
effective.
APPENDIX I PARCEL, 2.1.1 - 02-- 003D
1 tIE: Sl'TtTE €? OT\ Rt) OF TAX AF'PE: ALS? D I V I S I O N ONE:? COI. IVE: t. IE:[) AT
02: OC) F'hI ON 0 4 / . 1 9 / 8 9 v AND REACI. IED A DEC: ISION ON 1' I. IE f'ROPER1. Y
I[ jE. NTIF'TE: l) ADOVE.
t . III E: P ~ ~ : T I - I . T ~ ~ ~ ~ AIP: RPE ALED TO ' I'I. IE: STATE ROAR[) OF T n x
. trff't:: T\ l. S, I:) I\? T610N ONE P l' 1.1E 1) ECTSIC) N OF' T t i E BOARD Of:
E; lJF'E: HVT E; OHS I t 4 1' I. IE COUNTY OF MAR XCOPA.
2. ill€:: Rfi: SlJ1.. TS OF Tl4E BOARD'S I> ECISI: ON I S SIiOWt4 014 1klE
A1' 1 AC: tIE: O FQRI. 1 TA4110.
3. 7' I. IE: hPFE: AL. WAS T1MEL. Y FIL. ED.
4. ItIE: PE: I'I'I'IONE: R APPEAL.€:':[) THE FULL. C: ASIi VALUE AS EXC: E: E; SJ. VE: ON
l t l t i : E? I'tE; IS OF' ' TIltY I1ARKE: T APPR0AC; Ii 1' 0 VALUE' At4L) SUtZtIITTE:[)
8AL. E: S D f i 1' 4 ' I'O SUPFORT THE: VALUE ESTI). IA'IE. . I 59
5. ' I'Ilti: RtLSPOt4DtZNTS f3ASIEi FOR VAl.. LJE WAS THE MARKET APFR0AC; H 1' 0
V J f SAl.. fi: S D A l ' A WERE E i U B t l I T T E D TO SUPPORT T I i E VALUE
EST IhIA1' E. 4 6 0
6. Tilt!: UOAND F'It4t) S 1 ' l i A T THE PROPEERTY I S CORRECTLY VAL. 1JE: D At40
TI- IE: IWL. LJE SE: T BY TIK c o u t d ' r y IS LJPI. IEI.. D. THE FULL. CAE; I. I VALLJE
FOR FlJl'LJRE: YE: AREi I S 7' 0 BE UASED UPON STANDARD A P P R A I S A L
M1ETt. lOD3 At4[) TECl. It4IQUES. 6C) U
C O N C L U S I O N O F L A W
2. FUI.. L.. ll: AStl VAL.. UE: I S THE TOTAL.. VAl.. UE OF THE LAND AN[) ANY
TI. IPROVE: PIE; t.( TS Tt4ERETO AND I S SYNOt4YMOUS W I Tt. 1 MARKET VALLIE:.
3. l'I. IE: A9E; ESSOR E; tiAl.. L. f'RE: PARE THE V A L U A T I O N OF AL- 1.. REAL PROPtZRTY I N
AC: COR[ St\ t. IC: t W I T l i STANDARD APPRAIEiAL METIiODS CIND TEC; I. INIQlJES P U R S U ~ I I ~ T~ O'
DEPI'IR 1' t. lfiNT Of: REVENUE PIANUALS AND PROCEDURES ( A. R . S. 42- 22.1 ; 42-. 1 23.0.1
4. AIdY f'ROFtiR1' Y OWNER MAY I N Q U I R E OF F I I S OR t. lER VALUE FOR AD VAl- OREM
T h X PUf< F) OSES AS OF JANUARY 2 OF THE CURRENT YEAR ( A. R. S. 4 2 - 2 2 1 ).
5. I.. It. II'I'E:[ j PROPERTY VAL- LIE I S A M I N I S T E R I A L CALC: CJL. ATXON AND I S CIEFINED
AS H1JL. E: A: l'lit: GRErS'I'ER OF (. I) TH E: SUM OF L A S T YEAR'S L. IMI1. ED VAL.. UE;
PL. 1JS . It)%, OR ( 2) l.. AST YEAH ' S L X f l I T E D VALUE PLUE; 25% OF ' I'I. IE:
DIFFERE:~. IC: E: BE: TW~~: EI.. NAS T YEAR ' s LIMITED VALCJF: AND ' rtji: C: URRENT YE: AR s
FCJL. 1.. CASI- I VAl- lJE. R1JL. E B: If:' Tt iE PROPERTY I S NEW, I i A D / I\ CI.. lfiNGti:
I N USE: OR SIGNIF'IC:) I\ NTLY Ct- IANGED PtiYSICA1, l- Yv THE l.. IMI1' E:[) PR0PE: RTY
V~ ILLJE: GITL. 1.. BE: A Pfi: RC: ENThGE OF FUL. 1.. C: ASli VALUE COMPARABLE 7' 0 7' IlAT
OF' 0Tl111: ft PROPE: Rl'J. E: Ei OF 7' liE E; AME OR E; IMIl.. AR lJSE OR C: l, AE; SIF: CCAl'IOt. I.
L I t I I l ' E : [ ) FROPE: Rl'Y VALUE MAY HOT EXCEED Tt. lE CURRENT F U L L C: ASIi VAL. lIE.
APPENDIX 11
M L M O
June 7, 1989
TO: Douglas R. Norton, Auditor General
FROM: Arizona Legislative Counci 1
RE: Request for Research and Statutory Interpretation ( 0- 89- 3)
This memo is sent in response to a request made on your behalf by
Wi 11 iam Thomson in a memo dated May 24, 1989.
FACT SITUATION:
Arizona Revised Statutes section 42- 245 authorizes any individual
dissatisfied with his property valuation as set by the county board of
equalization to appeal to the state board of tax appeals ( board) within
fifteen days of the decision or mailing of the decision, whichever is later.
Property tax appeals are handled by division one of the board.
According to Rule R16- 2- 107, upon receipt of a petition or appeal, division
one shall:
1. Assign a docket number to the case.
2. Record the f i ling of the petition or appeal in the docket
book.
3. Assign a place and time for the hearing of the case and
notify the petitioner or appellant of the hearing date.
4. Notify the Department of Revenue, the county assessor, the
owner of the property . . . or others who might be a party in
interest to the hearing.
In lieu of holding a hearing, the board may decide appeals on the
record. Rule R16- 2- 119 states:
Whenever the record in any case includes a stipulation by both
parties . . . or when the Board orders a hearing on the record
and no objection is made within 10 days, the casemay be
submitted to the Board for decision on the record.
As a practical matter, the board decided many appeals filed in 1988 " on
the record" because the volume of appeals exceeded available time and
resources. In some cases, appellants received a letter which provides notice
that the appeal wi 11 be heard on the record. A copy of the board's rules,
including rule R16- 2- 119, is enclosed with the letter. According to this
letter, on the record review means that all arguments will be in writing, no
oral testimony wi 11 be taken, and neither party wi 11 appear before the board.
Other cases scheduled by the board for a hearing have been heard on the
record because of lack of time; however, written notice was not given. I n
these cases, tax consultants representing multiple appellants have been
verbally informed on the day of the scheduled hearings that any cases which
the board does not have time to hear w i l l be decided on the record. The board
does not i n v i t e objections because there i s no time to hear these appeals
given the board' s current resource constraints.
QUESTIONS PRESENTED:
1. Does the board's practice of deciding cases on the record meet the
statutory requirements of A. R. S. section 42- 245 and comply with applicable
board rules?
2. Does an " on the record" decision constitute a " hearing" and meet
the requisites of due process i n cases i n which parties do not have an
opportunity to object to t h i s procedure?
3. Does the l e t t e r and i t s enclosures provide adequate notice to the
r i g h t t o object within ten days t o the on the record review?
4. If a party objects to an on the record review, i s the board
required t o hold a hearing?
5. If the board i s not i n compliance with applicable statutes or rules
r e l a t i v e t o i t s on the record procedures, are decisions rendered i n such
manner v a l i d and binding on parties at interest?
6. Would the board or the state be l i a b l e i n any way for f a i l i n g to
comply with statutes or rules applicable to on the record decisions of the
board?
ANSWERS :
1. No, if individuals are not given the opportunity to object. See
discussion.
2. No, see discussion.
3. Yes, R16- 2- 119 c l e a r l y states the r i g h t to object to an on the
record review within ten days. The board's procedures would be improved,
however, i f the l e t t e r made reference t o the ten day period.
4. Yes, because there i s no other r u l e or statutory provision which
provides f o r an exception t o the hearing required under A. R. S. section 42- 245.
5. The v a l i d i t y of board decisions which are made i n v i o l a t i o n of
statute or r u l e must be determined on a case by case basis. See discussion.
6. Yes, see discussion.
DISCUSSION:
1. The board's practice of deciding some cases on the record without
giving the parties an opportunity to object has no basis either on statute or
in rule.
The board's practice of deciding some cases on the record after sending
the parties the letter and a copy of R16- 2- 119 is valid because the practice
satisfies the requirements of the board's rules and the parties have waived
any statutory right to a hearing under A. R. S. section 42- 245 by their failure
to object to an on the record review. 73A C. J. S. Public ~ dministrative Law
and Procedure section 142.
2. An on the record decision does not constitute a hearing or meet the
requisites of due process if there is no opportunity for parties to object.
Due process requires notice and an opportunity to be heard. 2 Am. Jur. 2d
Administrative Law section 414. The board and its hearing procedures are
subject to the administrative procedure act ( A. R. S. section 41- 1001 et seq. )
because the board and its proceedings are not expressly exempted by law.
A. R. S. section 41- 1002. The notice and hearing procedures required by the
administrative procedure act are set forth in A. R. S. sections 41- 1061 and
41- 1062. The hearing requirements under A. R. S. section 41- 1062 include the
parties' right to submit evidence in open hearing and the right of
cross- examination. Obviously, the on the record review does not comply with
these procedural requirements.
5. Any action the board takes in violation of its own rules may be
invalidated by a court if an aggrieved party proves that it had been
prejudiced by the noncompliance. See, Missouri Mat. Educ. v. Missouri State
Bd. 695 S. W. 2d 894, 897 ( 1985). If an aggrieved party objected to the - 9
board's procedures, a court that reviews- a decision of- the board which was
based on the record without giving the parties the opportunity to object
within ten days as provided by rule would probably remand the case to the
board with directions that the board must c m l y with its ~ rocedural
requirements. See, Caldwell v. Arizona State Board of- oental ~ xaminers, 137
Ariz. 396, 670 P. 2d 1220, 1225 ( App. 1983).
6. It is clear that the board is acting under color of law in
rendering its decisions. It is also clear that the board in rendering its
decisions may deprive parties of property interests. Theref ore, parties have
a constitutional claim under 42 United States Code ( U. S. C.) section 1983 for
due process safeguards to apply to its actions. See, Tiffany v. Ariz.
Interscholastic Ass'n. Inc., 151 Ariz. 134, 726 P. 2d 231 ( App. 1986).
Parties, of course, may waive their right to due process protections ( see
discussion under question 1). However, if the case is decided on the record
without giving the parties an opportunity to object, 42 U. S. C. section 1983
has been violated and the aggrieved parties may be awarded attorney fees
pursuant to 42 U. S. C. section 1988. Id. 726 P. 2d 231 at 236.
In sum, the board's practice of deciding some of its cases on the
record without providing the parties the opportunity to object to this
procedure in accordance with its rules is probably illegal under state and
federal law. Furthermore, this practice may subject the board to monetary
liabi lity under 42 U. S. C. section 1988 for attorney fees paid by an aggrieved
party.
M E M O
July 6, 1989
TO: Douglas R. Norton
Audi t o r General
FROM: Arizona Legislative Council
RE: Request f o r Research and Statutory Interpretation ( 0- 89- 5)
This i s i n response to a request submitted on your behalf by Bi 11
Thomson i n a memorandum dated June 28, 1989.
FACT SITUATION:
Arizona Revised Statutes ( A. R. S. ) section 42- 245, subsection A,
paragraph 2 provides that any person d i s s a t i s f i e d w i t h a c l a s s i f i c a t i o n or
valuation of his property may appeal to the state board o f tax appeals
( state board). A. R. S. sections 42- 171 e t seq. establish the state board
and prescribe i t s duties and authority. A. R. S. section 42- 174 r e l a t i n g t o
the state board's authority to increase or decrease individual valuations
states:
42- 174. Increase or decrease i n individual
valuation; hearina; notice
The state board of tax appeals may at any time require
any county board o f supervisors or the cierk thereof and . the
department t o furnish statements showing the valuation of the
property of any person within any county or within the state.
The board shall consider and equalize such valuations and
a f t e r hearing may increase or decrease the valuation of the
property of any person, provided that no increase i n any
valuation shall be made without f i r s t giving at least f i v e
days' notice, by c e r t i f i e d or registered l e t t e r to the owner
o f the property t o be affected at his address shown on the
then existing tax r o l l , o f i t s intention to do so and of the
time and place of the hearing of the board at which such
increase i s proposed t o be acted upon. The owner of the
property so affected may appear at the hearing and be heard
i n protest of any such proposed increase.
I n 1988, the state board raised valuations i n over 600 cases which
were heard following an appeal brought i n accordance with the provisions
of A. R. S. section 42- 245, subsection A, paragraph 2. However, the board
has since discontinued raising values in such cases on advice of counsel
and in consideration of a 1978 Arizona supreme court decision which was
brought to its attention by counsel. ( Pima Countv v. Cmrus- Pima Mininq
Co 119 A r k 111.) - 9
QUEST1 ONS PRESENTED:
1. Does the state board have authority to raise property
valuations in cases involving appeals brought in accordance with A. R. S.
sect ion 42- 245, subsection A, paragraph 21
2. If the state board does not have authority to raise valuations
in such cases, are the increased valuations fixed by the board in 1988
valid and effective?
3. Is the state board's authority to increase property valuations
limited to cases in whdch the department of revenue ( DOR) or a county
assessor has appealed for an increase in valuation?
4. In cases in which a person appealed his property valuation
claiming it was excessive, does the board have authority to increase the
property valuation above the value set by DOR or a county assessor?
DISCUSSION:
1. As an initial comnent, the function of this office in
connection with performance audits by the auditor general is to provide
legal research and statutory interpretation. The attorney general has the
same responsibility in providing legal advice to state agencies. In this
case where the state board has received a legal interpretation from its
counsel, the state board members are obligated to follow that counsel or
risk personal 1 i abi 1 i ty for the consequences. It would be inappropriate
for this office to gainsay or second guess the attorney general's advice
or otherwise interfere with the attorney- client relationship between the
attorney general and the state board.
That being said, however, it is appropriate to point out the
fol lowing:
- A. R. S. section 42- 245, subsection A, paragraph 2
authorizes taxpayers ( not DOR or the county assessor) to
appeal from the county board of equalization to the state
board of tax appeals. In such cases the appeal would almost
certainly be to reduce the assessment fixed by the county
board.
- County assessors and DOR may appeal reductions in
assessments to the state board under A. R. S. section 42- 245,
subsection C. Such an appeal would obviously be an attempt
to increase the assessment fixed by the county board at least
back to the amount fixed by the county assessor or DOR, if
not higher.
- Pima County v. Cyprus- Pima Minins Co., supra, held
that the assessing e n t i t y cannot " appealM f o r a higher
assessment merely by way of i t s answer to an appeal i n i t i a t e d
by the taxpayer. Instead, the county assessor or OOR must
f i l e a d i r e c t appeal or cross- appeal.
- Applying that p r i n c i p l e to administrative appeals t o
the state board by taxpayers under A. R. S. section 42- 245,
subsection A, paragraph 2, if there i s no appeal or
cross- appeal by the assessor or DOR under A. R. S. section
42- 245, subsection C, the state board may set the valuation
at no greater than that set by the county board of
equalization.
It i s evident that the statutes contemplate the state board having
the authority t o r a i s e property valuations, and the court decisions do not
prevent this, it the issue i s brought to the state board i n the proper
manner. It i s simply a procedural matter. I n the case of an appeal from
the county board of equalization, the state board may respond t o the
appeal as presented to it. The state board may not respond to a request
t o increase the assessment unless the request i s presented by the taxpayer
( an u n l i k e l y occurrence) i n his appeal under A. R. S. section 42- 245,
subsection A, paragraph 2 or by the assessor or DOR i n an appeal under
subsection C. The state board may not increase an assessment i n response
t o a taxpayer's appeal t o lower the assessment, and the assessor or DOR
may not request an increase i n i t s answer t o a taxpayer appeal.
2. The 1988 assessment increases were presumably adopted according
t o standing administrative procedures at the time. Having been f i x e d by
the state board under color of law, they w i l l remain i n e f f e c t unless
invalidated by a court. Not knowing the specific circumstances and facts
of each case, it would be speculative to categorize the 1988 increases as
void.
3. No. I n addition t o the authority t o increase valuations
pursuant t o an appeal by the assessor or DOR, the state board, as noted i n
the given facts
. . . may at any time require any county board of
supervisors . . . and the department to furnish statements
showing the valuation of the property of any person within
any county or within the state. The board shall consider and
equalize such valuations and a f t e r hearing mav increase or
decrease the valuation of the property of a person,
provided that no increase i n any valuation shall be made
without f i r s t giving at least five days' notice . . . to the
owner . . . .
( A. R. S. section 42- 174, emphasis added.)
This provision i s generally u t i l i z e d i n the course of equalization
proceedings i n s t i t u t e d by DOR involving several parcels of property i n a
tax c l a s s i f i c a t i o n or i n a county. It should be noted, however, that the
language of the statute is not limited to general equalization
proceedings. The state board could use this provision to sua sDonte
review the valuation of any property of any person at any time and
increase the assessment to bring it into line with similarly situated
property. The language of the statute appears to be deliberately crafted
to allow consideration of individual cases. It should be noted, however,
that A. R. S. section 42- 174 is not intended as authority to raise
valuations for the purpose of increasing revenues. This power to review
and increase ( and reduce) assessments is only for the purpose of tax
equity among property owners.
4. No. As explained in the response to question no. 1 above, if
the taxpayer appeals ( assuming he is appealing for a reduction in the
assessment), the state board can only reduce or sustain the county board's
valuation and assessment. The state board can increase the assessment
pursuant to an appeal only by the assessor or DOR, not by a taxpayer
appeal .