Arizona Attorney - July/August 2015

use or classification:

1. Property that was erroneously totally or partially omitted from the property tax rolls in the preceding tax year.

2. Property for which a change in use has occurred since the preceding tax year.

3. Property that has been modified by construction, destruction or demolition since the preceding valuation year.

4. Property that has been split, subdivided or consolidated from January 1 through September 30 of the valuation year, except for cases that result from an action initiated by a governmental entity.

Under this authority, if an owner initi-
ates one of the enumerated changes to his
property, the county assessor is directed to
establish the LPV of that property “at a
level or percentage of full cash value that is
comparable to that of other properties of
the same or similar use or classification.”
This is known as the “Rule B ratio.” Each
year, the assessor in each county performs
a study comparing the difference between
the FCV and LPV of similar properties
within a particular classification. The dif-
ference between average FCV and LPV,
stated as a percentage, derives the Rule B
ratio for that class of property for that tax
year. For example, if the average FCV of
Class 3 residential property is $100,000,
and the average LPV is $90,000, the
Rule B ratio for Class 3 property is 90 per-
cent ($100,000 ÷ $90,000 = 90 percent).

Rule B ratios are different for every
county, every class of property, and every
tax year. For the 2015 tax year, the Rule B
ratio in Maricopa County for Class 1 com-
mercial property is 93 percent, and for
Class 3 residential property it is 77 percent.
Between 2000 and 2015, the Maricopa
County Rule B ratio for commercial prop-
erty fluctuated from a low of 78 percent to
a high of 100 percent, and for residential
property from a low of 74 percent to a
high of 100 percent (see chart on page
41).

In inflationary times, a Rule B adjustment to an owner’s property could have significant consequences to his tax assessment. Referring to the example at the beginning of this article, assume two neighbors own identical homes, both valued on the 2015 tax roll at a FCV and LPV of $100,000. If the true market value (i.e., FCV) of both properties increases at a rate greater than 5 percent per year—say by 15 percent per year—by 2020 the FCV of each property will be $201,135, but the LPV, which lags behind at a 5 percent annual increase, will be $127,628. If one owner adds a room addition costing $10,000, that owner would receive an increase in FCV due to the additional improvement, say an increase to $211,135. The owner could also receive a Rule B adjustment to his LPV. 15 If, at his misfortune, the applicable Rule B ratio for that