Property taxes are one of the main expenses of real estate ownership in Arizona. In today’s business climate, taxes are under the microscope more than ever as property owners and managers seek ways to reduce expenses. We are fortunate that Arizona has a tax valuation appeal system. The system allows property owners or their agents to file an appeal petition for review with the purpose of lowering property tax.
Owners and managers know that property tax is habitually a component of common area maintenance expenses (CAM) and taxes affect an owner’s bottom line. Often an owner or manager faces difficulties in their ability to increase rental income rates as CAM allocations increase. Appealing the property tax value and achieving a valuation reduction can be key to reducing CAM expenses.
This is because most tenants want to know what their total monthly lease payment will be when they sign a lease. They want to know their full obligation for rent in advance. For example, if a tenant can afford a total rent of $18/sq. ft. and the CAM charges are $4.00/ sq. ft., then the building owner collects a net amount of $14.00/sq. ft. If CAM charges were to increase to $5.00/sq. ft., due to higher real estate taxes, it becomes uncertain whether the owner can increase or even maintain the same lease rental rate. As a result, property taxes affect the owner’s bottom line.
Meanwhile, the commercial and residential markets have been under severe distress during the last few years. The number of arms-length, market sales have significantly declined. As a result, there are a reduced number of sales for the assessor to utilize to properly set property values. This makes it difficult for the assessor to properly value properties to reflect the current market value. Consequently, the assessor often focuses on older sales, even though this data does not necessarily accurately reflect the existing market (or lack thereof).
How it works
Every property owner should closely examine their 2014 valuation notices and consider whether an appeal would be warranted. The local assessing offices mailed out their 2014 Notices of Value on January 31, 2013. The time in which to appeal the tax value is limited to a window of only 60 days, with the appeal filing deadline set for April 1, 2013.
If no petition for review (valuation appeal) is filed within this 60 day period, the valuation noticed by the assessor is used to establish the tax bill for that property parcel(s) for the following year. The Notice of Value occurs one year prior to the tax year in which property taxes are billed and due. Therefore, the notices sent out January 31, 2013 are the notices for taxes due in calendar year 2014.
Since the majority of tax consultants work on a contingency basis, there is usually no “down side” in having the property’s tax valuation reviewed to determine whether an appeal is merited. Meanwhile, the reduction in property taxes can considerably reduceCAMfor owners and positively affect the bottom-line.
Jodi A. Bain and James D. Wezelman are with The Sage Tax Group, Tucson’s largest real estate and personal property tax consulting firm. Sage Tax Group members have over 100 years of experience in the tax consulting business. The firm handles the majority of tax appeals for multi-family, retail, industrial and office properties in Southern Arizona. Ms. Bain can be reached at 520.885.4617, extension #101, if you have any questions.
Arizona laws regarding the appeal of tax valuations are highly complex. This article summarizes some main points of the appeal process only. One should seek the advice of a professional tax consultant or attorney regarding specific questions.
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