A successful property tax appeal of new construction can reduce a property’s tax liability over the property’s life due to Arizona’s “Rule B” ratio.


County assessors throughout Arizona have issued supplemental notices of value for the 2021 tax year. Supplemental notices are issued when there is new construction (including partially complete), parcel splits or consolidations, or a change in a property’s use.

Since the 5% limitation on property valuations went into effect with Proposition 117 in 2014, many Arizona taxpayers have grown complacent in monitoring their property’s valuation. If they fail to carefully review a supplemental notice, taxpayers may miss an opportunity — possibly a once-in-a-lifetime opportunity — to reduce a property’s tax liability not just for the current year but over the property’s life. The reason: a supplemental notice triggers a “Rule B” valuation.


Douglas S. John is a Phoenix property tax and state and local tax controversy attorney and a senior partner at Frazer Ryan Goldberg & Arnold LLP.

To understand the effect of a “Rule B” valuation, let’s take a simple example of a newly constructed apartment. Suppose construction of your new apartment was completed in March 2020. The county assessor sends out a supplemental valuation for tax year 2021 in September 2020 and sets a full cash value of $28,000,000. In Arizona, the full cash value (FCV) is typically synonymous with market value. This is the easy part.

Just to make things more complicated, Arizona has a second value known as the limited property value (LPV). The LPV is the value that is most important to taxpayers, because property taxes are calculated only from the LPV. The FCV varies from year to year, depending on market conditions. By contrast, the LPV is determined by a statutory formula based on a property’s LPV from the prior tax year, and it is limited to annual increases of no more than 5%. When a supplemental notice is issued, Arizona law considers this to be a first‐time valuation of a property, so there is no prior-year valuation to determine the LPV.

So how does a county assessor determine the LPV for our new apartment?

The LPV is established by what is called a “Rule B” ratio. The Rule B ratio is the ratio of the average LPV to the average FCV for similar properties in the same classification throughout the county. Rule B ratios vary by county, by class of property, and by tax year. For example, the Rule B ratios in Maricopa County for the 2021 tax year are:

• 57% for vacant land;

• 72% for commercial property; and

• 68% for residential property.

This means, for instance, that in Maricopa County the average LPV for residential property is currently 68% of the average FCV.

Based on Maricopa County’s “Rule B” ratio for our newly constructed apartment, the LPV would be established at 68% of the full cash value of $28,000,000, or at $19,040,000. The property’s tax liability will be calculated solely on the LPV of $19,040,000.


Now that we understand how the FCV and LPV are determined when a Rule B valuation occurs, the question remains why it represents a once-in-a-lifetime opportunity. The reason is that a successful appeal which reduces the FCV will also reduce the LPV in proportion to the Rule B ratio. For example, if our owner appeals the supplemental notice and successfully reduces the FCV to $24,000,000, the LPV will be set at 68% of the full cash value, or $16,320,000.

Let’s see what happens if the owner of our newly constructed apartment misses the deadline to appeal the 2021 supplemental notice. The owner waits until February 2021 and appeals the 2022 tax year notice. The FCV is again set at $28,000,000, and the LPV will be set at $19,992,000 (2021 tax year LPV of $19,040,000 x 1.05). The owner prevails on appeal by reducing the FCV to the same $24,000,000 value mentioned above.

In this case, however, there are no tax savings. A reduction in FCV will not, by itself, reduce the LPV. A reduction in the LPV can occur only when (1) there is a reduction in FCV below the current LPV or (2) the FCV is reduced and there is Rule-B valuation (new construction, re-parceling, and a change in use). In the example above, the FCV was reduced but not below the LPV and there was no Rule B valuation. Thus, the taxpayer will be paying taxes over the life of the property based on the initial LPV of $19,040,000, instead of the much lower $16,320,000. This represents paying 17% more in property taxes every year over the life of the property, simply because the taxpayer did not challenge the tax assessment in its first year. This is why a Rule B valuation represents a once-in-a-lifetime opportunity to reduce a property’s taxes not only for the current tax year, but for many tax years to come.


For taxpayers who want to appeal their valuation, they have 25 days from the mailing date of the supplemental notice to file an administrative appeal. All hope is not lost, however, if a taxpayer misses the 25-day window. A taxpayer may still initiate a lawsuit in tax court by December 15.

Owners that receive a supplemental notice should not be complacent about challenging their supplemental valuation. An appeal of a supplemental notice is a once in a lifetime opportunity to reduce their long-term property tax liability.


Douglas S. John is a Phoenix property tax and state and local tax controversy attorney and a senior partner at Frazer Ryan Goldberg & Arnold LLP. Mr. John can be reached at 602-277-2010 or by email.