Tag Archives: property taxes

Property Taxes, AZRE Magazine May/June 2011

Property Taxes: Keep A Keen Eye On County Valuation Notices

What if your business was overcharged for its electricity, natural gas, or perhaps new computers or furniture? Most of us would take a look at our bills, determine where the mistakes occurred and then take the needed steps to resolve the discrepancies. But what if your business is being overcharged for its property taxes by thousands of dollars each year? Is there a course of action to fix this potentially costly problem? The answer is yes.

Each year, typically in February, the county assessor releases “postcard” valuations for each property in the county. In some cases, these valuations exceed the properties’ market value. The problem that we see in Arizona is that many people do not take notice of their property taxes until the county treasurer’s office mails its annual tax bill. But in Arizona, you cannot protest your taxes — only the postcard valuation. Therefore, the time to review your property taxes is when your values are mailed in February, not when you receive your tax bills in October.

What does this mean for local business owners?

Without protesting a postcard valuation, a business owner’s taxes may be substantially higher. In many cases, they need not be. If a business owner paid $4M for an office building last year, on average, the owner will owe approximately $100,000 in real property taxes. However, if the county assessor values the property at $7M based on its computerized mass appraisal, and the business owner does not protest, the owner’s taxes may exceed $175,000.

Why would my property be overvalued?

Over the past several years we have seen significant changes in commercial values, with prices quickly rising in 2005 and 2006, and falling over the past couple of years. Today, however, there are signs of hope. According to William Spart, senior vice president of Wells Fargo Bank, “some submarkets and property types, including apartments, are showing signs of firming up.”

These drastic changes in the market over the past several years have made it difficult for county assessors to determine property value. It is not feasible for the assessors to separately analyze the unique characteristics of each and every parcel. Therefore, the assessor must rely on a blanket formulary approach that attempts to classify buildings and land into various categories to produce a valuation.

The positive is that many people, including Pete Bolton, executive vice president and managing director of Grubb & Ellis, says he believe that we are at the bottom of the market. According to Bolton, the “market has definitely stabilized and we are seeing five to seven main groups, including the FDIC, national banks, CMBS special servicers and others slowly releasing property to the market with market values bouncing along the bottom.”

What if I recently acquired my property?

In Arizona, real property is assessed on an annual basis by the assessor’s office of the county, where the property is physically located. Property tax values are released around February prior to the tax year. While existing owners of real property are required to file all administrative protests within 60 days of release of the postcard values, Arizona has special rules for new owners.

Under Arizona law, new owners have the ability to either take over the old owners’ appeal or if an appeal was not filed, they can typically appeal their valuation to the County Superior Court until Dec. 15 of the valuation year. If the prior owner did not appeal the current year taxes (prior year’s postcard values), you may be able to appeal these taxes as well.

For more information about property taxes, visit wwptax.com.

AZRE Magazine May/June 2011


speculative builder tax

Speculative Builder Tax: A Hidden Tax On Property Improvements

Most Arizona cities and towns impose a tax on the privilege of doing business within city or town limits. Indeed, business privilege taxes are a primary source of revenue for most cities and towns.

Unfortunately, many developers do not realize that real estate development is subject to the municipal transaction privilege tax if a developer sells real estate he has improved. This tax is known as the “speculative builder tax.” It applies even when the developer hires a prime contractor to construct the improvements. Fortunately, a developer can reduce the speculative builder tax by the prime contractor charges. Still, the speculative builder tax can be substantial where the sales price of the improved real property greatly exceeds the cost of the improvements.

Here is how it works. If an owner of real property improves it himself or through others by building a structure, making improvements to land without a structure, such as paving or landscaping, or when water, power, and streets have been brought to the property line, the owner can be liable for the tax if he sells the property after making the improvements. If the improvements consist of custom, model or inventory homes, or improved residential or commercial lots without a structure, then the property is subject to the speculative builder tax whenever the property is sold. On the other hand, if the improvements are made on commercial property, the tax only applies if the property is sold within 24 months after the improvements are substantially completed.

The tax rate varies by jurisdiction. The tax rate in Phoenix is currently 1.8 percent of the sales price. However, the city council recently increased the tax rate to 2 percent. Glendale recently raised its tax rate from 1.8 percent to 2.2 percent. The Scottsdale tax is 1.65 percent, the Mesa tax rate is 1.75 percent, and the Tempe tax rate is 1.8 percent. Some smaller cities and towns in Arizona charge up to 4 percent.

Municipal tax auditors find taxable sales by comparing recent sales to the building permits that have been pulled to improve the property. Using this audit technique, it is remarkably easy for city auditors to find sales of improved real property where taxes have not been paid.

The speculative builder tax can also entangle those who are purchasing improved real property. Municipal ordinances allow the city or town to collect the speculative builder tax from a purchaser if the buyer fails to pay the tax. Likewise, foreclosure or a sale in lieu of foreclosure can trigger the tax. Thus, lenders, or those who acquire recently improved real property at a foreclosure auction, could be liable for the tax.

If you are a commercial developer, one way to avoid the tax entirely is to wait at least 24 months to sell improved commercial property. If you develop residential property, you can pass the tax on to another developer who completes the project if that second developer agrees to take on that liability. But if you don’t plan, you could subject the same project to multiple layers of taxation if the project is bought and sold during development. This is due to the fact that each person who makes improvements to real property and then sells it is liable for the tax.

The bottom line is that developers need to be aware of the speculative builder tax when they sell improved real property so they are not caught unaware when the local tax auditor comes calling.

For more information on the speculative builder tax visit, modelcitytaxcode.org.

AZ Business Magazine September 2008