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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
property tax; agricultural real property
Purpose
Specifies that the class 2 property subclassification that consists of real property and improvements includes property used as agricultural real property, rather than property used for agricultural purposes. Requires property classified as agricultural real property, rather than land used for agricultural purposes, to be valued using only the income approach to value without any allowance for urban or market influences. Replaces the terms property used for agricultural purposes and land used for agricultural purposes with the term agricultural real property and makes various changes to statutes governing agricultural property.
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.
Class 2 property consists of three subclasses: 1) subclass (R); 2) subclass (P); and 3) subclass (C). Subclass (R) consists of real property and improvements that are used for agricultural purposes and that are valued at full cash value using standard appraisal methods and techniques or valued using the income approach to value. Each county assessor must determine the full cash value of all property as of January 1 of the next year by using the manuals furnished and procedures prescribed by the Arizona Department of Revenue (A.R.S. §§ 42-12002 and 42-13051).
Each agricultural land lease or rental agreement that is for a period of more than 90 days must be reported to the county assessor by the property owner, lessor or designated agent by filing an agricultural lease abstract that contains specified property and rental income data. Land approved for agricultural classification must be valued using only the income approach to value, without any allowance for urban or market influences. The income of agricultural property must be determined using the capitalized average annual net cash rental of the property. The average annual net cash rental is determined by the assessor through an analysis of typical arm’s length agricultural leases from the preceding five years for comparable agricultural land in the vicinity of the subject property (A.R.S. §§ 42-13101 and 42-13102).
Agricultural
real property means real property that is one or more of the following:
1) cropland in the aggregate of at least 20 gross acres; 2) an aggregate 10 or
more gross acres of permanent crops; 3) grazing land with a minimum carrying
capacity of 40 animal units and containing an economically feasible number of
animal units; 4) land and improvements devoted to commercial breeding, raising,
boarding or training equine or registered equine rescue facilities; 5) land and
improvements devoted to high density use for producing commodities;
6) land and improvements devoted to use in processing cotton necessary for
marketing; 7) land and improvements devoted to use in processing wine grapes
for marketing; 8) land and improvements devoted to use in processing citrus for
marketing; 9) land and improvements devoted to use as fruit or vegetable
commodity packing plants that do not cut or otherwise physically alter the
produce; 10) land and improvements owned by a dairy cooperative devoted to high
density use in producing, transporting, receiving, processing, storing,
marketing and selling milk and manufactured milk products without the presence
of any animal units on the land;
11) land of at least five acres and improvements devoted to algaculture; and
12) land and improvements devoted to agritourism (A.R.S.
§ 42-12151)
In addition to
meeting the statutory definition of agricultural real property, a
property must meet the following four statutorily prescribed criteria to be eligible
for classification as property used for agricultural purposes: 1) the
property's primary use is as agricultural land; 2) the property has been in
active production for at least three of the last five years; 3) there is a
reasonable expectation of operating profit, exclusive of land cost, from the property's
agricultural use; 4) if the property consists of noncontiguous parcels, all
parcels must be managed and operated on a unitary basis and make a functional
contribution to the property's agricultural use. Statutes grants the county
assessor flexibility under certain circumstances to approve agricultural
classification for properties that do not fully conform to the statutory
prescriptions (A.R.S. §§ 42-12152
and 42-12154)
If requiring property classified as agricultural real property, rather than land used for agricultural purposes, to be valued using only the income approach to value results in a tax shift that affects the obligations of the state, there may be a fiscal impact to the state General Fund.
Provisions
1. Specifies that class 2 property, subclass (R) consists of real property and improvements that are used as agricultural real property, rather than used for agricultural purposes.
2. Requires property classified as agricultural real property, rather than land used for agricultural purposes, to be valued using only the income approach to value without any allowance for urban or market influences.
3. Replaces the terms property used for agricultural purposes and land used for agricultural purposes with the term agricultural real property.
4. Applies the four statutorily prescribed eligibility criteria for agricultural classification to agricultural real property, rather than property used for agricultural purposes.
5. Requires ADOR to make agricultural real property application forms available, rather than agricultural use application forms.
6. Requires each agricultural real property lease or rental agreement, rather than each agricultural land lease or rental agreement, that is for a period of more than 90 days to be reported to the county assessor by the property owner, lessor or designated agent by filing an agricultural lease abstract that contains specified property and rental income data
7. Makes technical and conforming changes.
8. Becomes effective on the general effective date.
House Action
WM 1/28/26 DP 5-3-0-1
3rd Read 2/25/26 32-22-6
Prepared by Senate Research
March 13, 2026
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