ARIZONA STATE SENATE
Forty-seventh Legislature, Second Regular Session
FINAL AMENDED
FACT SHEET FOR H.B. 2474
verification of class three property
Purpose
Establishes annual reporting requirements for the Department of Revenue (DOR) regarding the counties’ efforts to identify properties that are incorrectly classified as owner-occupied residential (class 3).
Background
Property in Arizona is classified for assessment purposes into nine legal classes, with subclassifications in many of those classes. The classification is based on the current use of the property by its owner, such as commercial, agricultural or residential. Each legal class has an assessment ratio, which is specified by statute. The assessment ratio, which currently ranges from 1 percent to 25 percent, is used to calculate the assessed value of a property. The assessment ratio for class 3 (owner-occupied residential) and class 4 (leased or rented residential) properties is 10 percent. Current law specifies that the state pays 36 percent of the school district primary tax rate for owner-occupied homes, up to $520 in 2006 (Homeowner’s Rebate). According to DOR, the average Homeowner’s Rebate is $200 per residence.
Laws 1984, Chapter 371, required DOR to establish a program to identify rental residential properties that were incorrectly classified as “owner-occupied.” Additionally, this legislation established a civil penalty for owners who failed to respond to the notices and an appeal process to have the owner-occupied classification reinstated, exempted properties rented to specific family members from the reclassification requirements and required the county assessors to continue reviewing information to ensure proper classification of residential properties. A total of $350,000 was appropriated to fund the project.
DOR implemented the program during the summer of 1984 and identified over 500,000 potentially incorrectly classified properties throughout the state. The initial notices were mailed to those property owners in September 1984 requiring them to respond within a 30-day period and to verify the status of their property as owner-occupied or rental-residential.
Of the total 952,000 Arizona properties classified as owner-occupied, DOR placed 505,000 on the mailing list of potentially incorrectly classified properties. Of these, almost 70 percent were located in Maricopa and Pima counties. Approximately 60,200 properties were reclassified to rental-residential as a direct result of the information received from the mailings by DOR.
According to the Joint Legislative Budget Committee fiscal note, the estimated FY 2006-2007 fiscal impact cannot be determined with certainty due to the amnesty provision in the bill. In subsequent years, the estimated fiscal impact to the state General Fund is an ongoing savings between $6.2 million and $22.7 million. DOR estimates that H.B. 2474 would generate between $6 million and $12 million in savings to the state General Fund.
Provisions
1. Allows the county assessor’s office to enter into intergovernmental agreements with DOR for a coordinated review and identification of incorrectly classified residential property.
2. Requires DOR to monitor and review the assessors’ procedures and practices and suggest improvements to establish uniform processes and performance among the counties.
3. Authorizes DOR to require the reclassification of property and require information from the county assessor’s office to verify compliance with statutory procedures for the verification of class 3 properties.
4. Prescribes annual reporting requirements of the reclassified properties to the Governor and the Legislature and requires DOR to compile and report the county processes and procedures regarding the identification of incorrectly classified properties, the amount of additional state aid to education avoided and recommendations for improvements.
5. Makes technical and conforming changes.
6. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Eliminates the appropriation.
2. Requires DOR to conduct a statewide class 3 property review, identify erroneously classified properties and notify the county assessors.
3. Requires the program to assist the county assessors to be ongoing.
Amendments Adopted by Committee of the Whole
1. Restores statutory language regarding county administration and enforcement of rental residential properties that are misclassified as owner-occupied.
2. Eliminates provisions of the bill relating to the establishment of the Assessor’s Residential Rental Identification Fund.
3. Eliminates provisions of the bill regarding the modified verification of class three property notice requirements and property reclassification appeal deadlines.
4. Eliminates the increased penalties for misclassified properties.
5. Eliminates provisions of the bill relating to the amnesty period for property owners to notify the county assessor of a property’s appropriate classification.
6. Eliminates provisions of the bill relating to the requirement that DOR conduct a statewide property review to identify misclassified properties and establish an ongoing program to assist county assessors in identifying erroneously classified properties.
7. Modifies DOR’s reporting requirements to include the processes and procedures used by each county to identify erroneously classified properties and recommendations for improvements in other counties.
8. Removes the emergency clause.
Amendments Adopted by Conference Committee
1. Requires DOR to annually report to the Governor and the Legislature regarding the reclassification of misclassified class 3 properties.
2. Makes technical changes.
House Action Senate Action
WM 2/20/06 DPA 7-0-0-2 FIN 3/30/06 DPA 8-1-0-0
3rd Read 3/6/06 47-8-5 APPROP 4/13/06 W/D
Final Read 6/7/06 43-0-17-0 3rd Read 5/16/06 26-0-4-0
Final Read 6/8/06 21-0-9-0
Signed by the Governor 6/15/06
Chapter 322
Prepared by Senate Research
July 12, 2006
SL/ac