WWP offers a complete line of real property tax services. The first stage of our real property tax services is our review of the three recognized valuation methods used to set the Full Cash Value of our client’s properties. The three valuation methods include the Cost, Market and method, and each requires different types of information and documentation to support a challenge to a property valuation. WWP has developed proprietary software to apply these three valuation methods and has extensive knowledge and experience in developing and modifying valuations based on property-specific data. If WWP and our client agree that there is a basis to appeal the valuation of a particular property, WWP will submit all required information and documentation necessary to perfect the appeal.
The second stage of our real property tax services is our representation of clients throughout the entire appeals process. WWP has developed strong relationships with members of the county assessors’ offices and State Board of Equalization, and utilizes these contacts and its experience for the benefit of our clients.
FCV and LPV - In Arizona, real property is assessed and taxed by the county where the property is physically located on an annual basis. Property is valued in Arizona by using two valuation figures, the Full Cash Value (“FCV”) and Limited Property Value (“LPV”). In Arizona, the FCV by definition is the fair market value of the property. The LPV is a statutorily prescribed value that is intended to limit the increase of property taxes. While the FCV can increase or decrease each year by any amount, the LPV by law limits increase to five (5) percent per year. The LPV is now the sole value utilized to calculate Primary AND Secondary Taxes. The Primary tax rate is used to fund operation expenses for the government and school districts. While the Secondary rate is used to fund bonds, budget overrides, special districts (fire or flood control), and other limited purpose districts
Assessment Ratio - As part of calculating real property tax in Arizona, an assessment ratio that is determined by the type of property is applied to the FCV and LPV prior to applying the primary and secondary tax rates. The three most common assessment ratios are as follows: (1) Commercial property, due to recent legislation (2021), is assessed at 18% of the FCV and LPV for the 2021 tax year, and will be decreasing .5% per year, until it reaches 16% of the FCV and LPV for the 2025 tax year, (2) Residential property is assessed at 10% of FCV and LPV, and (3) Vacant Land is assessed at 15% of FCV and LPV.
Calculation of Tax - To calculate Arizona real property tax, the Limited Property Value (LPV), the Assessment Ratio, and the Primary and Secondary Tax Rates must be known. The calculation is as follows: (LPV x Assessment Ratio x Secondary Tax Rate) + (LPV x Assessment Ratio x Primary Tax Rate) = Current Tax.
Valuation Methods - Arizona currently recognizes three different methods to value real property for taxation purposes: the Cost, Market, and Income methods.
The cost method of valuation uses the construction/replacement cost of a facility to determine its value. Arizona uses a cost modeling system to determine the cost of a building. However, actual cost data can also be used.
The market method of valuation uses similar properties ("Comps") that are located in similar areas and have recently sold. The more closely related the buildings, use, size, location, etc., the stronger the case is for using that value.
The income method of valuation uses the income and expense generated by a property and capitalized to determine its valuation. This method requires three years of income and expense data. Although less than three years data can be submitted if that is all that is available, this partial data is not given much weight when attempting to reduce a property’s valuation.
Appeal Process - A property’s valuation in Arizona is determined one year prior to the tax year. Preliminary Arizona real property valuations are determined in February of the year prior. Once a taxpayer receives a “Notice of Valuation” from the relevant county assessor’s office, the taxpayer has 60 days to file an appeal and begin the appeals process. There are three levels of appeal, two administrative levels and one judicial level. The appeal process begins by filing a petition with the relevant county assessor based on one of the three recognized valuation methods. The final determination of the county assessor's office may be appealed to the State Board of Equalization ("SBOE") and then to the Arizona Tax Court.