ARIZONA STATE SENATE
Forty-eighth Legislature, First Regular Session
FACT SHEET FOR S.B. 1038
low income housing; property tax
Purpose
Establishes a uniform property valuation process for housing developed through the Low Income Housing Tax Credit Program.
Background
As part of the Tax Reform Act of 1986, Congress created the Low Income Housing Tax Credit Program (LIHTCP) to promote the development of affordable rental housing for low-income individuals and families (Internal Revenue Code, Section 42). The Arizona Department of Housing (ADOH) is the statutorily designated federal housing credit agency and is responsible for allocating low income housing tax credits in Arizona. According to ADOH, affordable housing developers typically sell the tax credits and use the proceeds to provide financing for a portion of housing development costs. In return for the tax credits, federal law requires that these properties comply with long-term rent and tenant income restrictions for at least 15 years. Each unit is afforded a maximum permitted gross rent, which varies depending on a number of factors, including family size and income. Gross rent includes rent, utility allowance and nonoptional charges such as trash collection service.
According to the Arizona Department of Revenue (DOR), there are conflicting opinions regarding the valuation of LIHTCP properties. DOR’s subsidized housing valuation guideline, issued in 1998, advises that LIHTCP properties be valued on a market value basis, which includes market income, construction costs and sales of conventional projects. This guideline is based on a 1989 Arizona Supreme Court decision, Recreation Centers of Sun City, Inc. v. Maricopa County. This contradicts a subsequent Arizona Tax Court case, Cottonwood v. Yavapai County, which specifically excludes low income housing tax credits from the income calculation for the purposes of determining a property’s valuation. DOR asserts that its guideline results in a higher value than the valuation method adopted by the Arizona Tax Court.
S.B. 1038 could impact the state General Fund in both increased additional state aid expenditures and reduced unorganized school district and minimum qualifying tax rate collections. Additionally, at the city, county and community college district levels and for secondary property taxpayers, the legislation results in property tax burden shifts among classes of property due to decreased net assessed value of the LIHTCP properties.
Provisions
1. Requires a county assessor to value qualified low income multifamily residential rental property using the income approach to value by using actual annual income and expenses of the property. Income derived from the sale of federal income tax credits and using a market-based capitalization rate developed for nonparticipating LIHTCP property is excluded from the income calculation.
2. Requires an owner of qualified low income multifamily residential rental property to provide the county assessor with written documentation that confirms LIHTCP participation.
3. Requires an owner of qualified low income multifamily residential rental property to annually provide the county assessor, by September 1: a) evidence that the property is being used for low income multifamily residential rental purposes and b) the preceding year’s itemized annual income and expenses.
4. Disqualifies LIHTCP properties from the low income multifamily residential rental valuation method if the property’s owner fails to comply with the information requirements.
5. Defines terms.
6. Becomes effective on the general effective date.
Prepared by Senate Research
January 8, 2007
SL/jas