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ARIZONA STATE LEGISLATURE

Fiftieth Legislature – First Regular Session

PROPERTY TAX APPEALS STUDY COMMITTEE

Minutes of Interim Meeting

Wednesday, September 28, 2011

House Hearing Room 1 -- 10:00 a.m.

CoChairman Harper called the meeting to order at 10:02 a.m. and attendance was noted by the secretary.

Members Present

Senator Steven Yarbrough                                          Representative Jack Harper

Lester G. Abrams                                                        Paul Mooney

Reese Anderson                                                          Pam Pearsall

Jim Brodnax                                                                Keith E. Russell

James Busby                                                               Jennifer Schuldt

Mary Chandler                                                            George Shook

John Greene (Frank Bouche)                                      Joe Wehrle

Buster Johnson

Members Absent

Bill Staples

PRESENTATIONS

Keith Russell, Maricopa County Assessor, gave an overview of property taxes in Arizona (Attachment 1), including sections of the statute relating to the appeal process in which discussion or clarification of legislative intent would be helpful to assessors:

• 42-16051. Petition for assessor review of improper valuation or classification.
• what kind of value estimate.
• definition of substantial information.
• appropriate course of action under the market approach of filing an appeal.
• 42-16052. Contents of petition based on income approach to value.
• does not indicate that the petitioner must have knowledge.
• 42-16053. Rejection of petition for failure to include substantial information; amended petition; appeal.
• other things can occur that would cause an assessor to reject an appeal.
• 42-16251. Definitions.
• if a mistake is made after March 1, the statute does not allow a mistake to be corrected until January 1 of the following year.

Mr. Russell reviewed statistics regarding property tax appeals filed in Maricopa County (Attachment 1).  In response to questions, he discussed the amount of time spent by staff during the analytical appraisal analysis and appeal processes, as well as the additional time and work that is involved because, according to attorneys, errors cannot legally be changed until January 1 of the subsequent year.  He indicated that there is not enough time to conduct a sufficient analysis on every piece of property that is appealed, except in instances where many variables are involved.

Mr. Wehrle commented that more time is spent in the rural counties in the discovery and analytical process up front because appeal parcel counts are much lower than that of
Maricopa County.  He and Mr. Mooney spent considerable time years ago trying to address the error correction problem, but a ruling from a court case in Pima County prevents assessors from making tax roll corrections upon discovery; assessors have to wait until the tax roll is processed, which, he opined, is ludicrous.

Mr. Mooney advised that SB1362, which dealt with error corrections, was amended years ago so assessors can initiate error corrections at any time during the calendar cycle through a formal error correction proceeding.  He stated that perhaps the assessor should have the administrative discretion to correct errors that are in the taxpayer’s favor when they are discovered without having to go through any type of formal process; it may be possible to “tweak” the statute to provide that ability. 

Mr. Russell and Mr. Mooney responded to questions concerning codes on geographic information system (GIS) maps of properties. 

Mr. Russell continued the presentation with statistics concerning litigation that occurred during calendar year 2010 in small claims court and tax court (Attachment 1).  He stated that by using resources to deal with litigation, the first part of the appeal process is not done as efficiently.  He reviewed a comparison of appeals to jurisdictions in other states.

Mr. Russell concluded by stating that assessors need an opportunity for discussion in order to make efficient use of resources to complete the tasks assigned to them so the public feels good about what the assessors are doing.

CoChairman Harper asked the time frame and cost for the Maricopa County Assessor’s Office to print off comparables for a neighborhood on a property before going to an initial appeal hearing.  After some discussion, Mr. Russell submitted that the time frame and cost would be substantial. 

Joy Gomez, B & G Property Tax Associates, reviewed the work of a prior Committee established in 1994 that she served on, which revamped the property tax system to what it is today.  The Committee remained impaneled for many years afterward to bring issues that arose to the Legislature for correction.  She made the following remarks:

• The provision for the taxpayer to request a meeting with the Assessor’s Office is not working, especially in Maricopa County; it was meant to be an exchange of information.  It is not unusual for an assessor to be inflexible on a value during a meeting or to refuse to meet because litigation is pending.  
• The retention of outside legal counsel for counties makes it difficult for taxpayers to settle issues because as long as the case goes to trial, legal counsel is compensated.  There is no incentive to settle, so perhaps a mitigation process can be set up. 
• The assessor should be able to recognize and correct an error.  The only restriction was that if an error would result in additional taxes, it would be corrected prospectively and not retroactively, which is clearly stated in the law.
• Legislation that dealt with interest rates on bonds is being used by Maricopa County attorneys to set interest rates on refunds, so if a taxpayer who fights to settle a tax case in court for five years wins and is owed $250,000, the refund rate could be as low as
  one percent instead of the previous ten percent.   
• The Department of Revenue transmits values to the assessor to place on the tax roll and transmit to the Treasurer to generate tax bills.  The process of transmitting some land parcels associated with centrally-valued parcels, especially in Maricopa County, has been a problem, specifically electric generation properties.
• Taxpayers are the reason most assessors are doing their jobs, so applying common respect and common courtesy would be helpful. 
• Assessors work with values, assessments and use of property, not taxes or tax rates, so assessors saying that certain properties are receiving tax breaks and pitting taxpayers against each other is not conducive to a good atmosphere.  The tax consequences should not be a consideration when addressing values. 
• The property tax appeal process is working, but there are still issues that cause appeals.  For example, a client with high density agriculture on his property also lives on the property.  He needs the agricultural status to buy fertilizer for trees.  The response from the State Board of Equalization (SBOE) was that if the taxpayer insists on the agricultural classification, the value of the property will be increased as opposed to the initial recommendation of the Assessor’s Office. 
• Values at market value is correct, unless it is statutorily valued, but even under the statutory value, it should never exceed market, which needs to be addressed.
• Lot splits are not a problem now, but when the economy improves, they will be.  During times of major growth in the county, lots were split so fast that no notices were given to taxpayers until a delinquent tax bill was received.
• A definition of substantial information is needed in regard to the appeal process.
• The rollover provision states that if someone is successful at the highest level of appeal, that value is supposed to roll to the next year, but, suddenly, there are many caveats as to why that is not happening, which needs to be addressed.
• A committee should be impaneled to address these issues and bring them to the Legislature for action or policy decisions.

Mr. Mooney recalled that when the prior Committee convened in 1994, a massive number of appeals were not being resolved administratively and went to the courts.  He checked the court website recently to see what happened since SB1362 was enacted in 1996; at that time, there were 3,831 tax court filings, and in FY2009, there were 1,989.  While it is gratifying that the number of court cases has been reduced, he opined that cases going to court could be settled if more time is taken at the administrative level.  It is easier to go to tax court than to go through an administrative appeal, which requires the taxpayer to go through several hoops and end up in court anyway.  He remarked that the current process is working in the rural counties because those assessors meet with taxpayers, but he surmised from Mr. Russell’s testimony that the Assessor’s Office in Maricopa County does not have the time to do that.  A resolution is needed to eliminate the 1,989 current cases, but the major challenge will be how to deal with
Maricopa County.

Mr. Brodnax stated that the State of California went to a two-year appeal process, which the Members may want to consider for Maricopa County.

Mr. Wehrle stated that one of the reasons the appeal process is working better in his county is that appeals filed are given to staff to conduct a review and send out a preliminary written notice of their finding with a box to check if the taxpayer wants a meeting with the assessor.  If so, a meeting is scheduled, and hopefully, an agreement is reached, and the parties involved sign off that everything is done.  That is one of the reasons that so many appeals go on to the County Board of Equalization and then ultimately to court.  He has very few court hearings; most cases are filed in court, but resolved before there is even a hearing.

Mr. Russell commented that Maricopa County is doing better than it has historically.  He is disappointed to hear from Ms. Gomez that someone walked away from a meeting without a document explaining the assessor’s position because he is aware that it may be difficult to remember everything that occurred during the meeting.  The Assessor’s Office inspects properties at the second level, but unfortunately, it cannot be done for every property at the first level.  If a resource is allocated to that endeavor, it cannot be allocated someplace else, so a “one size fits all” approach is taken as much as possible. 

Without objection, the meeting adjourned at 11:42 a.m.

                                                                        _______________________________

                                                                        Linda Taylor, Committee Secretary

                                                                        October 5, 2011

(Original minutes, attachments and audio on file in the Chief Clerk’s Office; video archives available at http://www.azleg.gov)

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PROPERTY TAX APPEALS

STUDY COMMITTEE

                        September 28, 2011

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